Leveraged exchange traded funds have capitalized off some market segments, juicing the returns of the ongoing bull rally or capitalizing off the misfortunes of other areas.
Geared or leveraged exchange traded products try to generate the multiple returns of a given market by taking on leverage through derivatives instruments, and these investment tools are not for the faint of heart.
With greater returns, traders are exposed to greater risks. 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.
If someone where unfortunate enough to stick with these types of products in a down market, an investor could see their investments quickly disappear. [10 Worst Leveraged ETFs of 2014]
Since these leveraged ETFs typically rebalance holdings on a daily basis, compounding issues can cause underperformance to their main objective during volatile market conditions. [Do You Know How Your Leveraged ETFs Work?]
Nevertheless, a strong bull market without long interruptions and relative lack of volatility helped maintain positive gains in some leveraged ETFs. Since the ETFs rebalance on a daily basis, the compounding effect actually benefited leveraged ETFs in an upward-trending market. As the following list of the 2014’s 10 best leveraged ETFs shows, some geared products greatly benefited from the right market conditions. All performances are as of December 11.