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5 Top-Performing Leveraged ETFs of October

The global stock market continued their strong performance in October with MSCI world equity index, which tracks shares in 47 countries, setting a record of the twelfth straight month of gains. With this, the index topped its 2003 run of 11 straight months of gains.

The impressive performance was driven by the surging technology stocks in the United States and elsewhere, a recovery in Spanish markets, dovish European Central Bank, as well as raft of strong earnings results and upbeat global economic data. Additionally, a jump in oil price and high expectation for U.S. tax reform boosted the sentiments across the globe (read: 5 Biggest ETF Winners of Trump Trade Resurgence).

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.

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

Direxion Daily Semiconductor Bull 3x Shares SOXL

This ETF targets the semiconductor corner of the U.S. technology sector with three times (3x) leveraged exposure to the PHLX Semiconductor Sector Index. It has amassed about $513.6 million in its asset base while charges 95 bps in fees per year. Volume is good as it exchanges around 456,000 shares a day on average. The fund gained 24.4% in October (read: Best ETFs & Stocks from October's Top Performing Sector).

Direxion Daily Homebuilders & Supplies Bull 3X Shares NAIL

The fund creates three times leveraged long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 14,000 shares. The fund has accumulated AUM of $34.6 million and surged about 24.2% last month.

Direxion Daily MSCI India Bull 3X Shares INDL

This ETF targets the Indian equity market and seeks to deliver thrice the daily performance of the MSCI India Index. The product has AUM of $103.1 million and charges 95 bps in fees and expenses. It trades in lower volumes of under 50,000 shares per day and was up 21% last month (read: Best-Performing ETF Areas of October).

Direxion Daily MSCI South Korea Bull 3X Shares KORU

This fund provides three times leveraged exposure to the South Korean equity market by tracking the MSCI Korea 25/50 Index. It charges an annual fee of 95 bps and trades in a light average daily volume of about 16,000 shares. The fund has accumulated AUM of $11.3 million and surged about 20% last month (read: What Lies Ahead for South Korea ETFs?).

Direxion Daily Technology Bull 3x Shares TECL

This ETF targets the U.S. technology sector with three times leveraged exposure to the Technology Select Sector Index. It has amassed about $441.3 million in its asset base while charges 95 bps in fees per year from investors. Volume is good as it exchanges around 142,000 shares a day on average. The fund added 17.6% in October (read: 5 Overlooked Tech ETFs Crushing XLK).

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 with 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 global 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 a friend in this corner of the investing world.

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DIR-TEC BULL3X (TECL): ETF Research Reports
 
DIR-D SM BL 3X (SOXL): ETF Research Reports
 
DIR-D IN BL 3X (INDL): ETF Research Reports
 
DIR-D HB&SP BU3 (NAIL): ETF Research Reports
 
DIR-D S KR BL3X (KORU): ETF Research Reports
 
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