Exchange-traded funds (ETFs) are typically considered to be suitable investments for retail investors who have a hands-off approach. The built-in portfolio diversity inherent to many of these funds and the ability to hand over management of a fund’s basket of securities to a team of professional managers appeal to beginning investors and those not eager to involve themselves in the business of regular trading. This is a major reason behind the meteoric rise of ETFs in recent years.
Nonetheless, some of the most successful funds in this space are designed for experienced investors with the expertise to handle complex—and oftentimes much riskier—investment strategies. ETFs employing leveraged strategies to amplify the returns of a target index are more suitable for investors interested in an active approach.
NVDL: Big Wins on NVIDIA Gains
As one of the largest companies in the world and a leading manufacturer of hardware used in ultra-popular AI applications, NVIDIA Corp. NASDAQ: NVDA is justifiably one of the most talked-about stocks today. As evidence of this, NVIDIA’s success in recent quarters has prompted the launch of a number of ETFs specifically targeting this company. While such a narrow focus is uncommon in the ETF space, the fact that many of these funds are leveraged—allowing them to aim for returns double or triple the daily performance of NVIDIA shares—makes them a draw for bullish investors.
GraniteShares 2x Long NVDA Daily ETF
(As of 09/12/2024 ET)
- 52-Week Range
- $11.94
▼
$91.70
- Assets Under Management
- $4.78 billion
The GraniteShares 2x Long NVDA Daily ETF NASDAQ: NVDL utilizes derivatives to provide a leveraged long play on NVIDIA. The fund aims to generate returns of twice the daily performance of the company in question. One aspect of NVDL that helps it to stand out among its NVIDIA-focused peers is its strong asset base and trading volumes. NVDL has assets under management totaling $3.9 billion and a 1-month average trading volume approaching 28,000,000. These elements ensure that NVDL offers superior liquidity, which is essential when investors must be ready to unload all NVDL each day in order to avoid a constant leverage trap.
FNGU: Powerful Short-Term Tech Access
Investors optimistic about the tech space but looking for somewhat broader exposure than a single stock might turn to the MicroSectors Fang+ Index 3X Leveraged ETN NYSEARCA: FNGU, which aims for triple the daily returns of five of the so-called FANG tech leaders and a small number of additional growth stocks in the space.
BMO REX MicroSectors FANG Index 3X Leveraged ETN
(As of 09/12/2024 ET)
- 52-Week Range
- $125.85
▼
$563.91
- Dividend Yield
- 0.00%
- Assets Under Management
- $5.25 billion
Like other leveraged funds, FNGU is not designed for a buy-and-hold strategy, but rather is best suited to investors that will turn over their holdings daily. Its healthy 1-month average trading volume of over 1 million and AUM of $4.8 billion support liquidity. On the other hand, it has an expense ratio of 0.95%, notably higher than most index ETFs available.
SPXL: Bullish S&P Opportunity
The Direxion Daily S&P 500 Bull 3X Shares ETF NYSEARCA: SPXL offers leveraged exposure to the broader market by aiming for triple the daily returns of the S&P 500. Investors optimistic about the short-term performance of large-cap stocks can maximize their potential returns through targeted exposure, though, as with other leveraged funds, holding SPXL for a period of longer than a day may lead to performance that diverges significantly from the market.
Direxion Daily S&P 500 Bull 3X
(As of 09/12/2024 ET)
- 52-Week Range
- $67.60
▼
$162.49
- Dividend Yield
- 0.13%
- Assets Under Management
- $4.27 billion
SPXL is an attractive option among leveraged funds providing broad market exposure because it offers access to the entirety of the S&P 500, whereas a competitor like the ProShares UltraPro QQQ NASDAQ: TQQQ gives exposure to a more limited set of names in the NASDAQ. By aiming for triple daily returns, SPXL can significantly amplify gains on a strong day for the market. However, it can conversely magnify losses as well.
Strong Potential for Those With Risk Tolerance
An essential element to each of these leveraged ETFs is their risk profile, which is greatly enhanced relative to most other ETFs. Investors would be wise to carefully consider their own tolerance before exploring these and other leveraged funds. Volatility decay is also a significant concern for investors holding these and other leveraged products longer than their intended duration. Nonetheless, for active traders with a firm understanding of the potential benefits and risks of these funds, they offer opportunities to amplify returns at the individual company, small industry-focused portfolio, and broad market levels.
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