The Xchange Blog

The Hottest Leveraged ETFs Of Summer 2019

After one of the most volatile summers in recent market history, traders are looking forward to the relative placidity that September historically brings (historical underperformance be damned). However, while liquidity might pick up as traders come back from their summer vacations, they’ll return to an economic environment riddled with the same headwinds that plagued traders in the summer months: trade wars, slow growth and geopolitical uncertainty.

One benefit to this continuity is that traders can look to thematic-ETFs to see where the market’s mindset has been in the past three months and get a sense of where it might be headed for the end of 2019. To that end, below are three of the top-performing ETFs from Direxion’s stable of leveraged vehicles over the past 3 months.

Trading Treasurys

As volatility and uncertainty rises, so too does the desire for safety and predictability. This explains the summer’s stampede-like rush to fixed income investments, particularly treasury notes. The buying spree led to a craterous drop in already low yields in fixed income (since the yield on existing notes moves inverse to the value of new ones), which in turn resulted in several inversions of the 2-year and 10-year yield charts.

All of which forced the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF) to rise by 38% between June and August. The Direxion Daily 7-10 Year Treasury Bull 3X Shares (TYD) posted gains over that period, of 15%.


Source: Yahoo Finance; Data as of Sept 3, 2019. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance and the most recent month-end performance, click here.

Heading into autumn, traders can likely expect more attention paid to the fixed-income market and other rate-sensitive instruments as all eyes turn to the Federal Reserve for three more planned meetings of the FOMC. Because the Fed’s current monetary policy plan seems to be “there is no plan,” traders will certainly be eager for whatever hints the Fed members might be willing to drop prior to the September, October and December meetings.

All that Glitters is Gold Miners

It should come as no surprise to anyone with even a passing knowledge of the precious metals markets that gold has seen a precipitous rise in value over the past three months, reaching highs it hasn’t seen since 2013, and even then, only briefly. Since the start of June, gold has climbed 20% to trade at prices it’s only held during a two-year span between mid-2011 and early-2013, during which it topped out at $1,837/oz.

This of course put gold miners in the catbird seat and propelled the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) and its junior miner counterpart the Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG) up 121% and 114%, respectively.


Source: Yahoo Finance; Data as of Sept 3, 2019. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance and the most recent month-end performance, click here.

While treasury bonds have a strong dollar to help fuel faith in the government debt instruments, the miners are essentially running higher on fear. Despite the U.S. dollar sitting near multi-year highs and a stock market that is not far removed from its own high-water mark, fear might be all they need to keep the price of the yellow metal climbing. With no sign that the U.S.-China trade war is abating, and increased evidence that the global economy is nearing a slowdown, there’s no shortage of anxiety on display in the financial markets.

Bearish Energy

If traders have rediscovered their love for gold, they’ve also uncovered a new-found aversion to everything energy. Oil prices have hobbled through 2019, mostly due to the twin anchors of high supply and low demand. However, beyond simply oil, energy markets overall have been burdened with a global glut, and none more so than the liquified natural gas industry, which has seen prices fall to a more than 15-year low.

As a result, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares (DRIP) gained 47% percent during summer 2019, while the Direxion Daily Natural Gas Related  Bear 3X Shares (GASX) was up  77% over that same period.


Source: Yahoo Finance; Data as of Sept 3, 2019. Past performance is not indicative of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost.  Current performance may be lower or higher than the performance data quoted. For standardized performance and the most recent month-end performance, click here.

While continued efforts from OPEC and OPEC-sympathetic nations like Russia to curb the oversupply of oil may stabilize prices, demand looks to remain anemic thanks to the ongoing tensions in global trade and high production from the U.S. The story is similar for LNG, however, prices typically do show increased signs of life as the colder weather sets in on the northern hemisphere.

 

Related Leveraged ETF

 

 


These leveraged ETFs seek investment results that are 300% of the return of its benchmark index for a single day. The ETFs should not be expected to provide returns which are three times the return of their benchmarks’ cumulative return for periods greater than a day. Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF increases the risk to the ETF. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investment.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the return of their underlying index for periods other than a single day.

TMF Risks – Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Liquidity Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and risks specific to investment in U.S. Government Securities. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity.  The market prices for such securities are not guaranteed and will fluctuate. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

TYD Risks – Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Liquidity Risk, Counterparty Risk, Intra-Day Investment Risk, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and risks specific to investment in U.S Government Securities. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to the timely payment of interest and principal when held to maturity.  The market prices for such securities are not guaranteed and will fluctuate. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

NUGT Risks – Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, Valuation Time Risk, and risks specific to investment in securities in the Gold Mining Industry, including Emerging Markets Risk, Gold and Silver Mining Company Risk, Mining and Metal Industry Risk, and Canadian Securities Risk.  Because the Fund’s Index is concentrated in the gold mining industry and may have significant exposure to assets in the silver mining industry, the Fund will be sensitive to changes in the overall condition of gold- and silver-related companies. Competitive pressures may have a significant effect on the financial condition of gold- and silver-related companies.  In addition, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk.  Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

JNUG Risks – Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Liquidity Risk, Counterparty Risk, Intra-Day Investment Risk Emerging Markets Risk, and risks specific to investment in the securities of Gold and Silver Mining Companies.  Because the Index is concentrated in the gold mining industry and may have significant exposure to assets in the silver mining industry, the Fund will be sensitive to changes in the overall condition of gold- and silver-related companies. Competitive pressures may have a significant effect on the financial condition of gold- and silver-related companies. Additional risks include Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk.  Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

DRIP Risks – Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Liquidity Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Energy Sector and the Oil and Gas Industry.  Companies in oil and gas exploration industries develop and produce crude oil and natural gas and provide drilling and other energy resources production and distribution related services. Stock prices for these types of companies are affected by supply and demand both for their specific product or services and for energy products in general. Additional risks include Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.

GASX Risks – Risks of the Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Aggressive Investment Techniques Risk, Liquidity Risk, Counterparty Risk, Intra-Day Investment Risk, Emerging Markets Risk, and risks specific to investment in the securities of the Energy Sector and Natural Gas Industry. The profitability of companies engaged in the exploration and production of natural gas may be adversely affected by changes in worldwide energy prices, exploration and production spending, government policies and regulation, economic conditions and world events. Additional risks include Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.