The S&P 500 Index entered a new bull market powered by a mega-cap tech stocks surge, a better-than-expected earnings season and hopes that the Fed is nearing the end of its rate-hiking cycle. Additionally, bouts of solid data indicate a still strong economy.
Inflation has cooled down this year, raising expectations of an easier monetary policy from the Federal Reserve, thereby bolstering the appeal for riskier assets. Further, corporate America’s shift of focus to structural benefits and artificial intelligence (AI) boom added to the strength (read: S&P 500 ETF Enters Bull Market: 5 Best Stocks YTD).
Given this, investors should bet on the best-performing leveraged ETFs of the new bull market provided “the trend remains your friend.” While the winners are concentrated in the technology sector, gaining more than 100%, we have tried to find out the best performers from various corners of the market. These include BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU, ProShares UltraPro QQQ TQQQ, Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL, Direxion Daily Consumer Discretionary Bull 3X Shares WANT and MicroSectors Travel 3x Leveraged ETN FLYU.
Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains a friend (see: all Leveraged Equity ETFs here).
Since most of these ETFs seek to attain their goals on a daily basis, their performance could vary significantly from the performance of their underlying index or benchmark over a longer period when compared to a shorter period (such as weeks, months or years) due to their compounding effect.
Investors should also note that leveraged ETFs involve a great deal of risk when compared to traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) – Up 292.9%
BMO REX MicroSectors FANG+ Index 3X Leveraged ETN seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. It has accumulated $2 billion in its asset base and trades in an average daily volume of 2.6 million shares (read: 5 ETFs Leading the Tech Outperformance in May).
ProShares UltraPro QQQ (TQQQ) – Up 112.9%
ProShares UltraPro QQQ offers three times the leveraged exposure to the NASDAQ-100 Index. It has amassed $15.3 billion in AUM and trades in a heavy volume of 106.4 million shares, on average. It charges 86 bps in annual fees.
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) – Up 97.8%
Direxion Daily Homebuilders & Supplies Bull 3X Shares provides leveraged exposure to homebuilders. It creates a three-times-long position in the Dow Jones U.S. Select Home Construction Index, charging an annual fee of 93 bps. Direxion Daily Homebuilders & Supplies Bull 3X Shares trades in a good average daily volume of about 221,000 shares and has accumulated $213.8 million in its asset base.
Direxion Daily Consumer Discretionary Bull 3X Shares (WANT) – Up 75.6%
Direxion Daily Consumer Discretionary Bull 3X Shares offers leveraged exposure play in the consumer discretionary sector. It provides three times exposure to the Consumer Discretionary Select Sector Index, charging 95 bps in annual fees. Direxion Daily Consumer Discretionary Bull 3X Shares has AUM of $33.1 million and an average daily volume of 54,000 shares.
MicroSectors Travel 3x Leveraged ETN (FLYU) – Up 73.2%
MicroSectors Travel 3x Leveraged ETN offers three times exposure to the performance of the MerQube MicroSectors U.S. Travel Index. It has accumulated $5.5 million in its asset base since its debut late June last year and charges 95 bps in annual fees. MicroSectors Travel 3x Leveraged ETN trades in a paltry volume of 3,000 shares per day, on average (read: Time for Travel ETFs As Summer Travel Season Kicks Off?).
Will The Trend Continue?
The bullish trend is expected to continue for at least a few months. The latest data from the American Association of Individual Investors (AAII) showed that around 44% of investors surveyed are bullish on the market, meaning that they expect stock prices to rise over the next six months. Just 24% were bearish, meaning that they think stock prices will fall. As per the data from Carson Group Chief Market Strategist Ryan Detrick, after rallying 20% from market lows, the S&P 500 averaged a 10% return over the next six months and 17.7% over the next 12 months.
Goldman Sachs Group’s analyst David Kostin emerges as an optimist from the divergent views of Wall Street strategists. Kostin expects the gains to continue as other sectors begin to catch up with the robust rally seen in technology shares.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.