In recent years, inverse and leveraged exchange traded funds have spent ample time in the spotlight .
Investors enjoy the idea of potential returns that are two or three times those of plain vanilla ETFs, but leveraged ETFs are not buy-and-hold instruments.
Rather, these products are best suited for active, risk-tolerant traders, something that both ProShares and Direxion, the two largest issuers of leveraged of inverse and leveraged ETFs, do a good job of explaining to investors on their web sites.
Still, it can be useful (and fun) to examine year-to-date returns for some of the top-performing leveraged ETFs and that is exactly what we’ll do here, though this list should NOT be construed to be an endorsement of applying a buy-and-hold strategy to these funds.
However, this list can be useful for short-term traders and those looking to identify winning sectors. Here are the top-10 leveraged ETFs of 2013 (returns of as of Dec. 2) starting with the…
Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS)
YTD: 110.5%
Comment: Financial services ETFs, plain vanilla and leveraged fare, have been stellar performers in 2013. FAS confirms as much as the fund has more than doubled on the year. FAS, which is designed to offer three times the daily performance of the Russell 1000 Financial Services Index, could have more in store over the near-term. The fund is up 7% in the past month and is home to improving technicals. [Leveraged Bank ETF on the Cusp of a Breakout]
ProShares UltraPro 3x Financials (NYSEArca: FINU)
YTD: 113.2%
Comment: FINU is the ProShares answer to FAZ, though the former tracks a different index, that being the the Dow Jones Financial index. That means FINU is the triple-leveraged equivalent of the iShares U.S. Financials ETF (NYSEArca: IYF). IYF’s top holdings include J.P. Morgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC).
iPath LX Russell 1000 ETN (NYSEArca: ROLA)
YTD: 113.2%
Comment: The lone ETF on this list, ROLA has more than doubled this year as well. ROLA is designed to be a leveraged play on the Russell 1000 Total Return Index, which tracks the 1,000 largest constituents from the Russell 3000.
ProShares UltraPro QQQ (NasdaqGS: TQQQ)
YTD: 120.2%
Comment: TQQQ is the triple-leveraged cousin of the popular PowerShares QQQ (NasdaqGS: QQQ), the Nasdaq 100 tracking ETF. With the Nasdaq Composite hovering around 4,000, its highest level in 13 years, there is ample bubble talk. That would of course be damaging to TQQQ, but noteworthy is the fact that QQQ’s valuations are not yet indicative of a bubble.
Direxion Daily Semiconductor Bull 3X Shares (NYSEArca: SOXX)
YTD: 122.4%
Comment: Shares of Intel (NasdaqGM: INTC) are up “just” 19% this year, but clearly, other semiconductor makers have thrived. Adding to the near-term allure of SOXX is the fact that this is usually a good time of year to be long semiconductor stocks. [‘Tis the Season for Semis?]
Direxion Daily Small Cap Bull 3X Shares (NYSEArca: TNA)
YTD: 132.8%
Comment: TNA is the triple-leveraged answer to the small-cap Russell 2000, an index that has topped the S&P 500 by about 800 basis points this year. Active traders should be advised that the Russell 2000 is now bumping into some key long-term resistance, meaning TNA’s bearish sibling, the Direxion Daily Small Cap Bear 3X Shares (NYSEArca: TZA), could be the better near-term play.
ProShares UltraPro Russell 2000 (NYSEArca: URTY)
YTD: 134.8%
Comment: URTY is another tripled-leveraged spin on the Russell 2000. It trades around $80 compared to around $71 for TNA.
Direxion Daily Retail Bull 3X Shares (NYSEArca: RETL)
YTD: 141.8%
Comment: Among leveraged ETFs, RETL does not get a lot of attention, but with a year-to-date gain of almost 142%, perhaps the fund is deserving of more praise. Reverse splits are commonplace in the world of leveraged ETFs, but RETL has been so strong this year that, like FAS, it was forward split on three-for-one basis earlier this year.
ProShares Ultra Nasdaq Biotechnology (NasdaqGS: BIB)
YTD: 155.7%
Comment: BIB is the double-leveraged equivalent of one this year’s best industry ETFs: The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB). Both are triple-digit ETFs and a double-leveraged bet on IBB means a big bet on the largest biotech names, such as Amgen (NasdaqGM: AMGN) and Celegene (Nasdaq: CELG).
Direxion Daily Healthcare Bull 3x Shares (NYSEArca: CURE)
YTD: 159.7%
Comment: Speaking of splits and health care ETFs, there is CURE, which was split two-for-one in August. CURE attempts to provide three times the daily returns of the Health Care Select Sector Index, the underlying index for the Health Care Select Sector SPDR (NYSEArca: XLV). XLV is the best of the nine sector SPDR ETFs this year. [Health Care SPDR Moves Into Third Place for Sector ETF Heft]
Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST)
YTD: 165.7%
Comment: If not for its own split, DUST would be residing in triple-digit territory. The way things are going for gold miners, it may not be long before DUST gets there. This is how fast DUST can move: In the month ending Dec. 2, the ETF was up almost 57%. Great for active traders, but not suitable for conservative investors. [ETF Chart of the Day: Gold Miners]