Data indicate plenty of risk-tolerant traders continue to embrace leveraged exchange traded funds in search of outsized, short-term gains.
Just last month, the ProShares Ultra Russell2000 (NYSEArca: UWM), a double leveraged bet on the Russell 2000, and the ProShares Ultra S&P500 ETF (NYSEArca: SSO), which attempts to deliver twice the daily returns of the S&P 500, hauled in $3.3 billion combined. [Some Leveraged ETFs Gained Supporters in March]
Additionally, the crisis in Ukraine stoked increased activity in triple-leveraged Russia ETFs as the Direxion Daily Russia Bear 3x Shares (NYSEArca: RUSS) and the Direxion Daily Russia Bull 3x Shares (NYSEArca: RUSL) repeatedly saw higher volume and increased creation activity during March.[White House is a Bad Place for ETF Advice]
The latter point illustrates the fact profitable use of leveraged ETFs usually involves good timing. And that is what we’ll address here: Some leveraged ETFs, both bullish and bearish, that due to current market conditions, may be worth considering for risk-tolerant traders. Let’s get started with the…
ProShares UltraPro Short QQQ (NasdaqGM: SQQQ)
Bullish Equivalent: ProShares UltraPro QQQ (NasdaqGM: TQQQ)
Comment: The Nasdaq Composite plunged 110 points, or 2.6%, Friday. As has been widely documented, momentum stocks, including biotech and social media, are under siege. Negative price action in those names and others sent the PowerShares QQQ (NasdaqGM: QQQ), the NASDAQ-100 tracking ETF, below its 50-day moving average. SQQQ, which gained 8.2% Friday, seeks investment results which correspond to three times (300%) the inverse of the daily performance of the NASDAQ-100 Index. [Social Slide: Social Media ETF Flirts With Bear Market]
ProShares Ultrashort Nasdaq Biotechnology (NasdaqGM: BIS)
Bullish Equivalent: ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB)
Comment: Speaking of biotech’s rapid decline, we have the ProShares Ultrashort Nasdaq Biotechnology, a prime example of an ETF that is truly benefiting from the plunge in the once beloved sector. The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB) saw $70 million in outflows over the past month, but BIS, which attempts to deliver twice the daily inverse performance of the Nasdaq Biotechnology Index, IBB’s underlying index, has attracted $20.4 million in assets over the past month while the ETF surged 22.4%. [Inverse Biotech Suddenly Cool Kid at ETF Party]
Direxion Daily Brazil Bull 3x Shares (NYSEArca; BRZU)
Bearish equivalent: Direxion Daily Brazil 3x Bear Shares (NYSEArca: BRZS)
Comment: The iShares MSCI Brazil Capped ETF (NYSEArca: EWZ) is up nearly 14% in just the past month, after the ETF impressively gained 1.1% on nearly double the average daily volume on Friday. Impressive because EWZ soared while U.S. stocks wilted. BRZU attempts to deliver three times the daily performance of the MSCI Brazil 25-50 Index. BRZU is up nearly 41% in just the past month.
Direxion Daily Energy Bull 3X Shares (NYSEArca: ERX)
Bearish Equivalent: Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY)
Comment: After playing the role of sector laggards, energy stocks and ETFs have been perking up in recent weeks. Part of the reason is that investors now view the sector as a bargain compared to other groups that are stretched on valuation.
As measured by Morningstar’s price/fair value ratio as of March 21 “it appears as though current valuations look favorable in the energy sector, as four out of 10 of the cheapest exchange-traded products have ties to this segment of the market,” according to Morningstar. ERX and ERY are the leveraged answers to the popular Energy Select Sector SPDR (NYSEArca: XLE). [Energy ETFs Energized by Inflows, Low Valuations]
Direxion Daily Small Cap Bear 3X Shares (NYSEArca: TZA)
Bullish Equivalent: Direxion Daily Small Cap Bull 3X Shares (NYSEArca: TNA)
Comment: Weakness in the world of small-caps was highlighted Friday when the iShares Russell 2000 ETF (NYSEArca: IWM) traded in a range of more than $4, losing 2.3% on volume that was nearly double the daily average. That brings IWM’s one-month loss to 4.5%. IWM is also now residing below its 50-day line. All of that is good news for TZA, which gained 7% on more than double the average daily turnover Friday.