7 Top Performing Leveraged ETFs of May

The month of May witnessed heightened volatility and uncertainty characterized by a series of broad-based sell offs, triggered by renewed trade war fears, Italian political crisis and a spike in U.S. bond yields. However, the combination of positive factors including strong corporate earnings, rise in oil price and some upbeat economic data drove the stocks higher, leading to positive returns for the Wall Street in the month (read: Trump, Tariff & Geopolitics Lead May: 10 Top ETF Stories).  

The frequent change in sentiments raised the appeal of leveraged ETFs as investors sought 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 a friend.

In fact, many products provided outsized gains last month, despite a great deal of risk involved when compared to traditional products. Below we have highlighted seven ETFs that generated more than 15% returns last month and should continue to do so at least for the near term if the sentiments remain intact (see: all Leveraged Equity ETFs here).

Direxion Daily S&P Biotech Bull 3x Shares LABU – Up 35.8%

This fund creates a 3x leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a heavy average daily volume of about 1.3 million shares. The fund has accumulated AUM of $484.7 million.

Direxion Daily Semiconductor Bull 3x Shares SOXL – Up 28.6%

This ETF targets the semiconductor corner of the technology sector with 3x leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $833.4 million in its asset base while charging 95 bps in fees per year. Volume is good as it exchanges nearly 801,000 shares a day on average (read: 4 Best Performing Sector ETFs of May).

Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares GUSH – Up 25.5%

This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $139 million in its asset base and the average daily volume is solid at around 1.3 million shares. Expense ratio comes in at 0.95%.

Direxion Daily Pharmaceutical & Medical Bull 3X Shares PILL – Up 24.3%

This product seeks to deliver thrice the daily performance of the Dynamic Pharmaceutical Intellidex Index. It has managed $3.9 million in AUM and trades in a light average daily volume of 9,000 shares. Expense ratio comes in at 0.95%.

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN FNGU – Up 20%

This note seeks to offer three times leveraged exposure to the NYSE FANG Index, which is an equal-dollar weighted index targeting the highly-traded growth stocks of next generation technology and tech-enabled companies in the technology and consumer discretionary sectors. The ETN debuted in late January and has accumulated $75.6 million since then. It charges 95 bps in annual fees and trades in average daily volume of 99,000 shares (read: 5 Leveraged ETFs That Soared More Than 20% in April).

Direxion Daily Aerospace & Defense Bull 3X Shares DFEN – Up 17.5%

The fund creates a 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 good average daily volume of more than 127,000 shares. The fund has accumulated AUM of $86.4 million.

Direxion Daily Small Cap Bull 3X Shares TNA – Up 17.5%

This ETF provides three times the return of the daily performance of the Russell 2000 Index and exchanges around 3.3 million shares in hand on average per day. The fund has AUM of $759.2 million and charges 95 bps in fees and expenses (read: 5 Small-Cap ETFs & Stocks Crushing Russell 2000).

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, their 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.

Still, for ETF investors who are bullish on 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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