5 Top-Performing Leveraged ETFs of September

Though heightened North Korea tension is playing foul in the stock market, the Wall Street has been riding high with broad-based gains across all the market caps and sectors. In fact, the S&P 500 index breached the 2,500 milestone on September 15 for the first time (read: S&P 500 Hits 2,500 Mark: How to Trade With ETFs ).

The key catalysts were a shift in investors' focus to steady economic fundamentals and strong corporate earnings after damages from Hurricane Irma were less than feared. Additionally, the energy sector has provided a huge boost to the stock market lately on rising oil prices . Higher demand forecast from OPEC and International Energy Agency and signs of lower production, as the historic output cut deal is paying off, have infused optimism in the struggling energy sector.

Further, rounds of upbeat data led to further strength in the broad stock market. Notably, U.S. GDP expanded 3% year over year in the second quarter, up from the previous reading of 2.6%, and represented the fastest pace in more than two years.

This has resulted in huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (i.e. 2x or 3x) to the daily performance of the underlying index by employing various investment strategies such as swaps, futures contracts and other derivative instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains a friend (read: Leveraged ETFs to Play the Second-Largest Bull Market ).

Below, we have highlighted five ETFs that crushed the market in September with abnormal returns piled up in a short period. Moreover, these funds will continue to be investors' darlings this quarter if sentiments remain the same.

Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares GUSH

This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $143.3 million in its asset base. Average daily volume is heavy at around 1.4 million shares while expense ratio is 0.95%. The product has gained more than 42% this month (read: Bet on Resurgent Energy Sector With Leveraged ETFs ).

Direxion Daily Natural Gas Related Bull 3x Shares GASL

This product seeks to deliver thrice the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund has amassed $58.1 million in AUM and trades in a good average daily volume of 159,000 shares. Expense ratio comes in at 0.95%. The fund delivered returns of about 38% this month.

Direxion Daily Retail Bull 3x Shares RETL

This fund seeks to deliver thrice the performance of the S&P Retail Select Industry Index. It trades in small volume of 36,000 shares a day and charges 95 bps in annual fees. RETL has gained about 17% this month and is the sole ETF in the retail space offering a leveraged exposure (read: Retail ETFs in Focus on Early Holiday Sales Forecast ).

Direxion Daily Transportation Bull 3X Shares TPOR

This ETF targets the transportation sector with three times leveraged exposure to the Dow Jones Transportation Average Index. It has amassed about $2.9 million in its asset base while charges 95 bps in fees per year from investors. Volume is paltry as it exchanges around 2,000 shares a day on average. The fund has gained nearly 12% in September.

Direxion Daily Aerospace & Defense Bull 3X Shares DFEN

The fund creates a three times leveraged long position in the Dow Jones U.S. Select Aerospace & Defense Index. It charges an annual fee of 95 bps and trades in small average daily volume of more than 27,000 shares. The fund has accumulated AUM of $28.6 million and surged about 11% in September (read: Beyond North Korea, 4 More Reasons to Buy Defense ETFs ).

Bottom Line

While this strategy is highly beneficial for short-term traders, it could lead to huge losses compared to traditional funds in fluctuating or seesaw markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to the shorter period (such as, weeks or months) due to their compounding effect (see: all Leveraged Equity ETFs here ).

Still, for ETF investors who are bullish on equities for the near term, either of the above products could make an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the trend is the friend in this corner of the investing world.

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DIR-D NG BL 3X (GASL): ETF Research Reports

DIRX-D SP OG BL (GUSH): ETF Research Reports

DIR-D RTL BL 3X (RETL): ETF Research Reports

DIR-D TRAN BL3X (TPOR): ETF Research Reports

DIR-D A&D BL3X (DFEN): ETF Research Reports

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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.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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