U.S. stocks continued their spectacular run to start the New Year. The Fed’s accommodative interest rate policy, a resilient domestic economy and hopes of a phase one deal signing later this week has been driving stocks higher.

Lower interest rates will keep borrowing costs down, thereby resulting in higher consumer spending and an upswing in economic activities. The U.S. economy has been witnessing steady growth backed by a strong job market, recovering housing market and higher consumer confidence. A technology surge, improving economic outlook and Q4 earnings optimism are adding to the strength. Though the Middle East tensions resulted in some volatility last week, it has abated for now (read: Bet on Favorite Sector ETFs & Stocks This Earnings Season).  

All these fundamentals led to huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (i.e. 2x or 3x) to the daily performance of the underlying index by employing various investment strategies such as swaps, futures contracts and other derivative instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains positive.

Below we highlighted eight leveraged equity ETFs that piled up double-digits gain to start 2020. These funds will continue to be investors’ favorites provided the sentiments remain bullish.

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU Quick QuoteFNGU - Free Report) – Up 27.7%

This note seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees. The ETN has accumulated $228.5 million in its asset base and trades in average daily volume of 126,000 shares.

Daily CSI China Internet Index Bull 2X Shares (CWEB Quick QuoteCWEB - Free Report) – Up 25.1%

This fund offers twice the leveraged exposure to China’s Internet market by tracking the CSI Overseas China Internet Index. It charges an annual fee of 95 bps and trades in moderate average daily volume of about 79,000 shares. The fund has accumulated AUM of $68.1 million (read: After a Solid 2019, 5 China ETFs to Keep Rallying in 2020).

Direxion Daily Russia Bull 3X Shares – Up 17.7%

This ETF creates three times long position in the MVIS Russia Index and has amassed about $83.6 million in its asset base while charging 90 bps in fees per year. Volume is lower as it exchanges around 46,000 shares a day on average

Daily Dow Jones Internet Bull 3X Shares (WEBL Quick QuoteWEBL - Free Report) – Up 15.4%

This fund provides three times leveraged play on the Internet corner of the broad technology sector by tracking the Dow Jones Internet Composite Index. It debuted in the space in November and has attracted $4.6 million in its asset base since then. The product charges 95 bps in annual fees and sees average daily volume of 5,000 shares.

Direxion Daily Technology Bull 3x Shares (TECL Quick QuoteTECL - Free Report) — Up 13.2%

This ETF targets the broad technology sector with three times exposure to the Technology Select Sector Index. It has amassed about $1.1 billion in its asset base and charges 95 bps in fees per year. Volume is good as it exchanges around 278,000 shares a day, on average.

Direxion Daily Communication Services Index Bull 3X Shares – Up 12.1%

This ETF seeks to deliver three times the performance of the Communication Services Select Sector Index, charging investors 95 bps in annual fees. It has AUM of $2.2 million and average daily volume of 5,000 shares.

ProShares UltraPro QQQ (TQQQ Quick QuoteTQQQ - Free Report) – Up 11.9%

This ETF provides three times the returns of the daily performance of the Nasdaq-100 Index. It is one of the popular and liquid options in the leveraged large-cap space with AUM of $4.7 billion and average daily volume of 17 million shares. TQQQ charges 95 bps in fees per year (read: 10 ETFs That Have Been Investors' Favorites).

Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN Quick QuoteDFEN - Free Report) — Up 11.1%

The fund creates three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in a good average daily volume of about 52,000 shares. The fund has accumulated AUM of $68.6 million.

Bottom Line

While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in fluctuating or seesawing markets. Further, the ETFs’ performance could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as weeks or months) due to their compounding effect (see: all the Leveraged Equity ETFs here).

Still, for ETF investors who are bullish on U.S. equities for the near term, any of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the “trend is the friend” in this corner of the investing world.

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