Leveraged ETFs aim to increase an index's returns by using strategies like borrowing or derivatives. They aim to provide multiples of the index performance, such as 2 times or 3 times. While this approach can result in profits during market movements, it also increases losses if the index declines. Leveraged ETFs are useful for short-term trading and can act as a hedge for investments. However, due to their high volatility, they are more suitable for short-term strategies rather than long-term investment goals.
Vance Howards HCM Tactical Growth Fund HCMGX has been successful in integrating leveraged ETFs into their portfolios. They have outperformed most of their competitors by achieving a gain of 20% over the last five years. This $1.6 billion fund strategically invests a portion of its assets in double and triple-leveraged ETFs that mirror the performance of the Nasdaq 100 index. Similarly, the HCM Dividend Sector Plus Fund (HCMZX), established in 2015, holds 40% of its investments in leveraged products and has surpassed the performance of the S&P 500 over the past five years. Despite their track record, it is important to note that these funds come with risks. For instance, in 2022, the HCM Tactical Growth Fund experienced a decline of 40%, which was significantly higher than the S&P 500’s drop of 18%.
Other funds include leveraged ETFs, like the Direxion Daily Technology Bull 3X Shares TECL. This fund primarily invests in instruments such as swap agreements, index securities and exchange-traded funds (ETFs) that together provide three times leveraged exposure to the technology sector index. The focus on leveraging the performance of the technology sector has led to returns of a 40.66% increase year to date, a 62.44% increase over the year, and a 17.47% increase over the past three years. This shows that the funds’ exposure in the technology sector generates commendable returns. However, there exists substantial risk and volatility.
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