Leveraged ETFs aim to amplify and sometimes transpose the daily return of an underlying index or asset, usually by a factor of 2 or 3 times the normal return. There are plenty of leveraged ETFs on the market, with varying objectives and degrees of leverage, but these securities have certain risks that investors should be aware of.
Leveraged ETFs use debt and/or derivatives, such as options, to generate double or triple the daily performance of a certain index or asset class. Leveraged ETFs can be either long (bull) or short (bear) ETFs. These are highly leveraged instruments and are typically used by professional investors.
It is worth noting though that while leveraged ETFs certainly have their purpose for short-term investing, for example, utilizing a triple-leveraged ETF as a hedge to protect a short position, long-term investors should be cautious of leveraged ETFs, understanding that things can change quickly, and should be prepared to be proactive.
For investors looking for more rapid gains, and willing to bear the risks, here are 2 Direxion Leveraged 3X ETFs focusing on the benchmark S&P 500 index:
Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL)
The Direxion Daily S&P 500 Bull 3X Shares seeks daily investment results, before fees and expenses, of 300% of the performance of the S&P 500 Index. There is no guarantee the funds will meet their stated investment objectives. Most investors are familiar with the S&P 500, where Standard & Poor’s selects the stocks comprising the index on the basis of market capitalization, financial viability of the company and the public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index. One cannot directly invest in an index. Many of the stocks are well-known, including the popular FAANG group.
This leveraged ETF seeks a return that is 300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.
Direxion Daily S&P 500 Bear 3X Shares ETF (SPXS)
The Direxion Daily S&P 500 Bear 3X Shares seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the performance of the S&P 500 Index. There is no guarantee the funds will meet their stated investment objectives. Most investors are familiar with the S&P 500, where Standard & Poor’s selects the stocks comprising the index on the basis of market capitalization, financial viability of the company and the public float, liquidity and price of a company’s shares outstanding. The Index is a float-adjusted, market capitalization-weighted index. One cannot directly invest in an index. Many of the stocks are well-known, including the popular FAANG group.
This leveraged ETF seeks a return that is -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.
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