Wall Street enjoyed a robust fourth quarter despite experiencing a correction in late October. Both the S&P 500 and the Nasdaq Composite Index fell into correction territory but staged a strong recovery, propelled by a combination of factors including easing inflation, growing expectations that the Federal Reserve is approaching the end of its monetary tightening cycle, and a decrease in bond yields. This rebound led all three major indices to conclude the quarter with eight consecutive weeks of gains.
The Nasdaq Composite Index was the outperformer, rising 14%, while the S&P 500 and Dow Jones Industrial advanced 11.4% and 12.1%, respectively. The strong performances have resulted in increased demand for leveraged ETFs as investors seek to register big gains in a short span. We highlight a bunch of the best-performing leveraged equity ETFs from different corners of the market that are leaders in their segments (read: 5 Sector ETFs That Beat the Market in Q4).
These include GraniteShares 1.5x Long COIN Daily ETF CONL, Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL, Direxion Daily Regional Banks Bull 3x Shares DPST, Direxion Daily Semiconductor Bull 3x Shares SOXL and Direxion Daily Retail Bull 3X Shares RETL. These funds will continue to be investors’ darlings, at least in the near term, provided the sentiments remain bullish.
Broad market sentiments have turned extremely bullish following the Fed’s dovish tone this month, which pushed the three benchmarks to new highs on several occasions. The Dow Jones touched a historic high, while the S&P 500 is just 0.3% away from the peak set in January 2022.
In the latest meeting, Federal Reserve Chair Jerome Powell hinted at a major policy shift as inflation is easing and the economy is holding up better. The central bank kept interest rates steady for the third time and penciled in three rate cuts of 75 bps for 2024. Lower interest rates generally lead to reduced borrowing costs, which can stimulate economic growth.
Recent indicators suggest that economic activity has been expanding at a moderate pace, buoyed by robust consumer spending, strong job gains and a low unemployment rate.
Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend.
Since most of these ETFs seek to attain their goals on a daily basis, their performances could vary significantly from the performance of their underlying index or benchmark over a longer period compared with a shorter period (such as weeks, months or years) due to their compounding effect (see: all Leveraged Equity ETFs here).
Investors should also note that leveraged ETFs involve a great deal of risk than traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.
GraniteShares 1.5x Long COIN Daily ETF (CONL) – Up 260.5%
GraniteShares 1.5x Long COIN Daily ETF seeks 1.5 times (150%) the daily percentage change of the common stock of Coinbase Global Inc (COIN). It has accumulated $42.5 million in its asset base while trading in an average daily volume of 362,000 shares. GraniteShares 1.5x Long COIN Daily ETF charges 99 bps in annual fees (read: Bitcoin ETFs Set to Explode in 2024 After a Marvelous 2023).
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) - Up 106.6%
Direxion Daily Homebuilders & Supplies Bull 3X Shares provides leveraged exposure to homebuilders. It creates a three-times-long position in the Dow Jones U.S. Select Home Construction Index, charging an annual fee of 93 bps. Direxion Daily Homebuilders & Supplies Bull 3X Shares trades in a good average daily volume of about 303,000 shares and has accumulated $310.6 million in its asset base.
Direxion Daily Regional Banks Bull 3x Shares (DPST) - Up 98.4%
Direxion Daily Regional Banks Bull 3x Shares seeks to deliver thrice the returns of the S&P Regional Banks Select Industry Index, charging 89 bps in fees per year. DPST has accumulated $894.2 million in its asset base and trades in a moderate volume of around 1.7 million shares a day on average.
Direxion Daily Semiconductor Bull 3x Shares (SOXL) – Up 86.9%
Direxion Daily Semiconductor Bull 3x Shares targets the semiconductor corner of the technology sector with three times leveraged exposure to the NYSE Semiconductor Index. Direxion Daily Semiconductor Bull 3x Shares has amassed about $7.9 billion in its asset base, while charging 89 bps in fees per year. Volume is good as it exchanges 63.4 million shares per day on average (read: 10 Most Actively Traded ETFs of Q4).
Direxion Daily Retail Bull 3X Shares (RETL) – Up 75.8%
Direxion Daily Retail Bull 3X Shares offers three times leveraged exposure to the S&P Retail Select Industry Index. Direxion Daily Retail Bull 3X Shares has amassed about $65 million in its asset base, while charging 95 bps in fees per year. It exchanges around 607,000 shares a day on average.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.