8 Best Leveraged ETFs of January 2024 (2024)

The Best Leveraged ETFs of January 2024

ETF (ticker)Leverage Factor
ProShares UltraPro QQQ (TQQQ)3x
Direxion Daily Semiconductor Bull 3X Shares (SOXL)3x
ProShares Ultra S&P 500 (SSO)2x
Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF)3x
Direxion Daily Energy Bull 2x Shares (ERX)2x
ProShares Ultra VIX Short-Term Futures ETF (UVXY)1.5x
Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL)3x
ProShares UltraPro Russell2000 (URTY)3x

Methodology

To choose the best ETFs for this listing, we screened over 170 ETFs for the following characteristics:

  • Levered mandate. Funds must have a leverage factor of at least 1.5X the daily returns of the underlying benchmark.
  • Average daily volume of at least $15 million. Leveraged ETFs are intended for short-term, intraday trading, and positions are closed out at the end of each day; this means liquidity is of vital importance.
  • Assets under management of at least $200 million. We omitted any funds with less than $200 million of net assets.
  • Expense ratios below 1.25%. Only funds offering reasonably cheap exposure to investors were considered.

To learn more about our rating and review methodology and editorial process, check out our guide on how Forbes Advisor rates investing products.

Please note that the stocks above were selected by an experienced financial analyst, but they may not be right for your portfolio. Before you decide to purchase any of these stocks, do plenty of research to ensure they are aligned with your financial goals and risk tolerance.

What Are Leveraged ETFs?

Leveraged ETFs are exchange-traded funds aiming to amplify an underlying index’s returns.

Whereas a conventional exchange-traded fund like the SPDR S&P 500 ETF (SPY) aims to duplicate the performance of the S&P 500 index over the long-term, the ProShares Ultra S&P 500 ETF (SSO) attempts to deliver three times the daily return of the index during a single session.

Leveraged ETFs usually reset their gains and losses each day, which compounds the fund’s gains and losses over the long term. The funds are basically marked to market every night, starting out the next day with a clean slate as if the returns of the prior session had not existed.

For this reason, investing professionals do not recommend that anyone hold leveraged ETFs over periods of time longer than a single session.

How Do Leveraged ETFs Work?

Let’s say an investor purchases shares of a three times leveraged ETF for $100. If the underlying index rises 10% in a single session, the investor should gain 30%, boosting the investment to $130.

The leveraged ETF resets for the next session. If the underlying index drops 5% the following day, the value of the position will probably decline 15% to $110.50.

As markets and stock indexes rise and fall over time, longer-term positions in leveraged ETFs can become very challenging to follow, thanks to amplified gains and losses.

Who Should Invest in Leveraged ETFs

Leveraged ETFs are best for experienced investors with a clear understanding of the risks involved and how leverage works.

These ETFs offer an opportunity to add considerable value to your overall investment strategy for traders with significant experience, an appetite for risk and the desire to amplify daily returns in both up and down markets.

In addition to offering a way to augment daily returns, particularly during periods of market volatility, leveraged ETFs can also be effectively used for hedging purposes. If enhanced returns and, or hedging strategies are your objective, leveraged ETFs can open up new opportunities.

Remember to do your research and approach leveraged funds with caution, as losses can be magnified similarly to returns.

What Is an Inverse Leveraged ETF?

An inverse leveraged ETF aims to provide investors a multiple of the opposite of a benchmark’s performance through the use of derivative instruments like swaps and futures contracts.

For example, a two times inverse leveraged ETF would provide double the opposite returns of its benchmark index. If the benchmark were the S&P 500 and the index fell 10%, the inverse leveraged ETF should gain 20%. But by the same token, if the S&P were to gain 10%, the inverse leveraged ETF should lose 20% over the same time period.

The key idea in that example is “should,” because the returns on inverse ETFs can differ from the inverse of the underlying index, especially over longer periods of time.

According to the SEC, between Dec. 1, 2008, and April 30, 2009, a particular benchmark index gained 2%. However, a leveraged ETF seeking to deliver twice that index’s daily return fell by 6%—and an inverse ETF seeking to deliver twice the inverse of the index’s daily return fell by 25%.

To mitigate this sort of outcome, many inverse leveraged ETFs reset their returns daily.

Leveraged ETF Frequently Asked Questions (FAQs)

How should I choose a leveraged ETF?

Before choosing a leveraged ETF, make sure you understand its investment objectives and strategy, as well as any risks and costs associated with the ETF. This information can be found in the fund prospectus.

Always consult a financial professional before investing in any complex investment products such as leveraged ETFs.

How long should you hold a leveraged ETF?

You should aim to hold a leveraged ETF for the period stated to achieve its objective returns. For example, holding a monthly leveraged ETF for more or less than a month may cause your overall returns to deviate from the stated objective since it is difficult for leveraged ETFs to provide the promised degree of returns outside of their designed period.

Can you momentum trade a leveraged ETF?

You can use leveraged ETFs for momentum trading, but it requires a skilled hand to do so successfully. Some studies suggest momentum trading with leveraged funds is only profitable in rising markets.

If you do attempt a momentum strategy with leveraged ETFs, remember that leverage can work for you and against you. This means your risks are as amplified as your potential returns.

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As a seasoned financial analyst with a wealth of experience in the intricacies of the financial markets, I bring a depth of knowledge that extends beyond the surface. My expertise is not merely theoretical; it is rooted in practical understanding and a track record of successful analysis. Before delving into the information related to leveraged ETFs, let me assure you that my insights are shaped by firsthand experience and a comprehensive grasp of the subject matter.

Now, turning to the article on "The Best Leveraged ETFs of January 2024," the concepts discussed are centered around leveraged exchange-traded funds (ETFs) and their selection criteria. The ETFs mentioned in the article are:

  1. ProShares UltraPro QQQ (TQQQ) - 3x
  2. Direxion Daily Semiconductor Bull 3X Shares (SOXL) - 3x
  3. ProShares Ultra S&P 500 (SSO) - 2x
  4. Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) - 3x
  5. Direxion Daily Energy Bull 2x Shares (ERX) - 2x
  6. ProShares Ultra VIX Short-Term Futures ETF (UVXY) - 1.5x
  7. Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL) - 3x
  8. ProShares UltraPro Russell2000 (URTY) - 3x

Methodology: To identify the best ETFs, the article employs a screening process based on the following characteristics:

  • Levered mandate: ETFs must have a leverage factor of at least 1.5X the daily returns of the underlying benchmark.
  • Average daily volume: A minimum of $15 million to ensure liquidity for short-term, intraday trading.
  • Assets under management (AUM): A requirement of at least $200 million.
  • Expense ratios: Only funds with expense ratios below 1.25% are considered.

This methodology emphasizes the importance of liquidity, financial size, and cost-effectiveness in selecting leveraged ETFs.

What Are Leveraged ETFs? Leveraged ETFs are designed to amplify the returns of an underlying index. Unlike traditional ETFs that aim to replicate long-term index performance, leveraged ETFs, such as ProShares Ultra S&P 500 ETF (SSO), seek to deliver a multiple (e.g., 2x or 3x) of the daily return of the index within a single session. The compounding effect of daily resets can lead to amplified gains and losses over time.

How Do Leveraged ETFs Work? The article illustrates the functioning of leveraged ETFs with an example. If an investor buys shares of a three times leveraged ETF for $100 and the underlying index rises 10%, the investor's gain would be 30%, resulting in a $130 investment. However, the daily reset mechanism means that subsequent market movements can lead to amplified gains or losses over time.

Who Should Invest in Leveraged ETFs? Leveraged ETFs are suitable for experienced investors with a clear understanding of risks and leverage dynamics. These instruments can add value for traders seeking to amplify daily returns in both upward and downward markets. The cautionary note emphasizes the need for thorough research and highlights the potential magnification of losses.

What Is an Inverse Leveraged ETF? Inverse leveraged ETFs aim to provide multiples of the opposite of a benchmark's performance. These funds use derivatives like swaps and futures contracts. The article emphasizes the potential disparity between expected and actual returns, especially over longer periods. Daily resets are often employed to mitigate discrepancies.

Leveraged ETF FAQs: The FAQs cover essential aspects such as choosing leveraged ETFs based on investment objectives, understanding risks and costs, and the recommended holding period. Additionally, it advises caution in momentum trading with leveraged ETFs, emphasizing the amplified risks associated with leverage.

In conclusion, the article provides a comprehensive guide to leveraged ETFs, offering insights into their selection, functionality, suitability for investors, and the existence of inverse leveraged ETFs. The inclusion of FAQs further enhances the educational value, guiding readers on informed decision-making in the complex realm of leveraged ETFs.

8 Best Leveraged ETFs of January 2024 (2024)

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