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 small cap stocks:
Direxion Daily Small Cap Bull 3X Shares ETF (TNA)
The Direxion Daily Small Cap Bull 3X Shares seeks the daily investment results, before fees and expenses, of 300% of the performance of the Russell 2000 Index. There is no guarantee the funds will meet their stated investment objectives. For those who don’t know, The Russell 2000 Index (RU20INTR) measures the performance of approximately 2,000 small-capitalization companies in the Russell 3000 Index, based on a combination of their market capitalization and current index membership. One cannot directly invest in an index. Small-cap stocks are shares of ownership of small businesses, and have a market capitalization of between $300 million and $2 billion.
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 Small Cap Bear 3X Shares ETF (TZA)
The Direxion Daily Small Cap Bear 3X Shares seeks the daily investment results, before fees and expenses, of 300% of the inverse (or opposite), of the performance of the Russell 2000 Index. There is no guarantee the funds will meet their stated investment objectives. For those who don’t know, The Russell 2000 Index (RU20INTR) measures the performance of approximately 2,000 small-capitalization companies in the Russell 3000 Index, based on a combination of their market capitalization and current index membership. One cannot directly invest in an index. Small-cap stocks are shares of ownership of small businesses, and have a market capitalization of between $300 million and $2 billion.
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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