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5 Leveraged/Inverse ETFs That Gained More Than 40% in Q3
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The third quarter proved to be highly volatile and uncertain for the U.S. stock market. After a solid start to the third quarter, Wall Street lost momentum on fears of higher rates for a longer-than-expected period. This anticipation has propelled bond market yields to their highest since 2007, leading to reduced stock prices and affecting other investment sectors.
In fact, the S&P 500 is on track to end the quarter down by 3.4% while Dow Jones will decline by more than 2%. The Nasdaq Composite Index is likely to end the quarter down by more than 4%.
This has resulted in huge demand for leveraged or inverse-leveraged ETFs as these fetch outsized returns on quick market turns in a short span. We highlight a bunch of the best-performing leveraged or inverse leveraged ETFs that have gained more than 40% in the third quarter. These include AdvisorShares MSOS 2x Daily ETF (MSOX - Free Report) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN , Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) , MAX Airlines -3X Inverse Leveraged ETN (JETD - Free Report) , and Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) . The funds will remain investors’ darlings, provided sentiments remain volatile.
Leveraged and inverse-leveraged ETFs either create a leveraged long/short position, an inverse long/short position, or a leveraged inverse long/short position in the underlying index through the use of swaps, options, futures contracts or other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months).
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than they appear.
Q3 Market Trends
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong and the unemployment rate has remained low. The U.S. banking system is also deemed to be sound and resilient. Though inflation is easing, it remains elevated and is above the Fed’s 2% target. The ongoing strength in the economy and the surging oil prices threaten to revive inflationary pressure.
The Federal Reserve, in its latest meeting, kept interest rates steady at a 22-year high in the range of 5.25% to 5.5% but signaled one more hike this year and a reduction in the number of rate cuts forecast for the following year. Bets over higher rates for longer than expected have pushed yields higher. Both 10-year and 30-year Treasury yields touched multi-year highs. The 10-year yields surged to 4.53%, a level not seen since October 2007, while the 30-year yield reached 4.64%, its highest level since April 2011.
AdvisorShares MSOS 2x Daily ETF is designed for sophisticated investors looking to gain magnified exposure to the U.S. cannabis sector. It offers daily investment results that correspond to two times the daily performance of the AdvisorShares Pure US Cannabis ETF. AdvisorShares MSOS 2x Daily ETF has accumulated $33.2 million in its asset base. It charges 95 bps in annual fees and trades in a volume of 519,000 shares a day on average (read: Behind the Recent Surge in Marijuana ETFs).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN – Up 64%
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $2 billion in its asset base while trading in an average daily volume of 54,000 shares. Its expense ratio is 0.95%.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) – Up 58%
Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. With AUM of $348 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 1.7 million shares a day on average (read: Inverse Treasury ETFs Surge as Yields Rise).
MAX Airlines -3X Inverse Leveraged ETN (JETD - Free Report) – Up 57%
MAX Airlines -3X Inverse Leveraged ETN is linked to a 3X times inverse leveraged participation in the daily performance of the Prime Airlines Index. It has gathered $5.7 million in its asset base since its debut in late June and trades in an average daily volume of 53,000 shares. MAX Airlines -3X Inverse Leveraged ETN charges 95 bps in fees per year from investors.
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry. It has amassed $59.8 million in its asset base and has an average daily volume of around 3 million shares. LABD charges investors 95 bps in annual fees.
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5 Leveraged/Inverse ETFs That Gained More Than 40% in Q3
The third quarter proved to be highly volatile and uncertain for the U.S. stock market. After a solid start to the third quarter, Wall Street lost momentum on fears of higher rates for a longer-than-expected period. This anticipation has propelled bond market yields to their highest since 2007, leading to reduced stock prices and affecting other investment sectors.
In fact, the S&P 500 is on track to end the quarter down by 3.4% while Dow Jones will decline by more than 2%. The Nasdaq Composite Index is likely to end the quarter down by more than 4%.
This has resulted in huge demand for leveraged or inverse-leveraged ETFs as these fetch outsized returns on quick market turns in a short span. We highlight a bunch of the best-performing leveraged or inverse leveraged ETFs that have gained more than 40% in the third quarter. These include AdvisorShares MSOS 2x Daily ETF (MSOX - Free Report) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN , Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) , MAX Airlines -3X Inverse Leveraged ETN (JETD - Free Report) , and Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) . The funds will remain investors’ darlings, provided sentiments remain volatile.
Leveraged and inverse-leveraged ETFs either create a leveraged long/short position, an inverse long/short position, or a leveraged inverse long/short position in the underlying index through the use of swaps, options, futures contracts or other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend (see: all the Inverse Equity ETFs here).
However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months).
Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than they appear.
Q3 Market Trends
Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong and the unemployment rate has remained low. The U.S. banking system is also deemed to be sound and resilient. Though inflation is easing, it remains elevated and is above the Fed’s 2% target. The ongoing strength in the economy and the surging oil prices threaten to revive inflationary pressure.
The Federal Reserve, in its latest meeting, kept interest rates steady at a 22-year high in the range of 5.25% to 5.5% but signaled one more hike this year and a reduction in the number of rate cuts forecast for the following year. Bets over higher rates for longer than expected have pushed yields higher. Both 10-year and 30-year Treasury yields touched multi-year highs. The 10-year yields surged to 4.53%, a level not seen since October 2007, while the 30-year yield reached 4.64%, its highest level since April 2011.
Here is a detailed discussion on the ETFs:
AdvisorShares MSOS 2x Daily ETF (MSOX - Free Report) – Up 81.7%
AdvisorShares MSOS 2x Daily ETF is designed for sophisticated investors looking to gain magnified exposure to the U.S. cannabis sector. It offers daily investment results that correspond to two times the daily performance of the AdvisorShares Pure US Cannabis ETF. AdvisorShares MSOS 2x Daily ETF has accumulated $33.2 million in its asset base. It charges 95 bps in annual fees and trades in a volume of 519,000 shares a day on average (read: Behind the Recent Surge in Marijuana ETFs).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN – Up 64%
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies. MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $2 billion in its asset base while trading in an average daily volume of 54,000 shares. Its expense ratio is 0.95%.
Direxion Daily 20+ Year Treasury Bear 3x Shares (TMV - Free Report) – Up 58%
Direxion Daily 20+ Year Treasury Bear 3x Shares offers three times the inverse exposure to the ICE U.S. Treasury 20+ Year Bond Index. With AUM of $348 million, Direxion Daily 20+ Year Treasury Bear 3x Shares charges 88 bps in fees and trades in a solid volume of 1.7 million shares a day on average (read: Inverse Treasury ETFs Surge as Yields Rise).
MAX Airlines -3X Inverse Leveraged ETN (JETD - Free Report) – Up 57%
MAX Airlines -3X Inverse Leveraged ETN is linked to a 3X times inverse leveraged participation in the daily performance of the Prime Airlines Index. It has gathered $5.7 million in its asset base since its debut in late June and trades in an average daily volume of 53,000 shares. MAX Airlines -3X Inverse Leveraged ETN charges 95 bps in fees per year from investors.
Direxion Daily S&P Biotech Bear 3x Shares (LABD - Free Report) – Up 43%
Direxion Daily S&P Biotech Bear 3x Shares seeks to deliver three times the inverse daily performance of the S&P Biotechnology Select Industry Index, which includes domestic companies from the biotechnology industry. It has amassed $59.8 million in its asset base and has an average daily volume of around 3 million shares. LABD charges investors 95 bps in annual fees.