Lever Up With This ETF as Mid-Caps Lead Economic Recoveries

Mid-cap equities provide anything but middle-of-the-road performance during an economic recovery, which means that traders might want to lever up on the Direxion Daily Mid Cap Bull 3X Shares (MIDU).

When markets are moving upward, small-cap equities can help amplify gains. On the opposite end of the spectrum, large-cap equities could help mute a downtrend, but what about mid-cap equities?

According to a State Street Global Advisors (SSGA) white paper, Mid Caps Defy Conventional Wisdom in Crisis and Recovery,” mid-cap equities can thrive during an economic recovery. In a time when the capital markets are in the recovery phase following the peak effects of the pandemic in 2020, traders might want to give mid-caps a closer look.

“Amid the ongoing COVID-19 crisis, market swings caused by the pandemic have created an opportunity for investors to reposition their portfolios,” SSGA noted. “Conventional wisdom states that large-cap stocks hold up best in market downturns and small-cap stocks lead in a recovery, but our research may surprise you.”

“Our analysis found that during periods of systemic risk since the mid-1990s, contrary to conventional wisdom, large caps did not fall the least and small caps did not lead recoveries,” SSGA added. “Instead, mid caps historically fared the best and showcased resiliency during these times.”

When pitted against each other, large-caps (represented by the S&P 500) have the slight edge so far in 2021 with a 17% gain. The Russell Midcap index is only slightly behind at 16.2%, while-small caps, represented by the Russell 2000, are up 13% on the year.^SPX Chart

Thrice the Mid-Cap Exposure

MIDU seeks daily investment results, before fees and expenses, of 300% of the daily performance of the S&P MidCap 400 Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements and securities of the index, ETFs that track the index, and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

The index measures the performance of 400 mid-sized companies in the United States. With the extra leverage, MIDU has been doling out big gains, up 49% year-to-date.

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