What Are 3x Leveraged ETFs, and Should You Invest in Them?
Leveraged and inverse exchange-traded funds (ETFs) are a controversial group of products, and there are plenty of arguments on both sides of the debate. Inverse leveraged ETFs, which trade with a $1.00 inverse to the S&P 500, are an especially controversial product. Some call them a “pyramid scheme,” but they can also be an effective tool for investors. Holding 3x leveraged ETFs, meanwhile, can offer a significant return once you understand the risks.
What is the 3x Leveraged ETFs?
3x leveraged ETFs allow investors to amplify their returns by borrowing money from a stockbroker and investing in shares of stocks. The leverage is usually three times the original amount invested and is often marketed as a way for investors to make more money, but it comes with a cost. Investors should be aware that 3x leveraged ETFs come with several caveats and fees. Investors must understand what they are getting into before investing in 3x leveraged ETFs.
Here are Some of the 3x Leveraged ETFs:
Direxion Daily Healthcare Bull 3X Shares ETF
Direxion Daily Healthcare Bull 3x Shares ETF is a fund that invests in daily leveraged 3x, or 3x inverse leveraged healthcare stocks. The 3x leverage has the effect of increasing the daily return of the portfolio but also increases the volatility of the portfolio.
The Dow Jones U.S. Healthcare Index measures the performance of equity securities in companies principally engaged in the research, development, manufacture, distribution, and sale of healthcare goods or services. The Healthcare Index is a subset of the DJIA Index.
Direxion Daily Aerospace & Defense Bull 3X Shares ETF
The Direxion Daily Aerospace & Defense Bull 3X Shares ETF (NYSEARCA: DOD) tracks the Dow Jones U.S. Aerospace & Defense Select Industry Index, which consists of 30 US stocks in the aerospace and defense industry. This index carries a 90-day SEC yield that ranges from 1.78% to 2.39%, depending on the earnings yield. This top-performing ETF was formerly known as Direxion Daily Aerospace & Defense Bull 3x Shares.
Investing in aerospace and defense (AA&D) companies for the long term can be profitable, but like with any major market, it’s important to keep some perspective.
Direxion Daily Regional Banks Bull 3X Shares ETF
The Direxion Daily Regional Banks Bull 3X Shares ETF (NYSEARCA: BNKX) tries to reflect the return and volatility of the underlying index (the 3X Bull 3x Daily Regional Banks Index). The index is comprised of large US regional banks. At its inception on November 9, 2017, BNKX had a nominal net asset value of $1 per share.
Direxion Daily Real Estate Bull 3X Shares ETF
Earnings season is underway, and as is always the case, the hundreds of public companies reporting their quarterly performance are revealing key data on earnings, revenue, net sales, and earnings per share (EPS). The data is valuable for investors because it provides a sense of which companies are performing well and which ones aren’t. To help investors keep up with what’s going on in the daily stock market, the experts at Direxion have created a Daily Real Estate Bull 3X Shares ETF.
Shares of Direxion Daily Real Estate Bull 3X Shares ETF (NYSE: DLRE) surged as much as 16.5% today, and that has pushed the ETF’s year-to-date return up to 31%. The ETF has surged more than 40% since the end of July. And DLRE’s recent gains are even more impressive when you consider that right before today, the ETF had fallen as much as 9.6% in a few days, erasing more than half of its previous gains over the last two weeks.
Direxion Daily Industrials Bull 3X Shares ETF
The Direxion Daily Industrials Bull 3X Shares ETF (NYSE: DJI) is a modified index fund that tracks the Solactive Industrial Bull 3X Shares Index. The index seeks to provide three times the daily performance of the Industrial Select Sector Index. It aims to identify large-capitalization, US dollar-denominated, global companies within select sectors. The fund’s investment objective is to provide a daily leveraged and unleveraged (inverse) three times (3x) March 28 maximum return, net of fees and expenses, of the Solactive Industrial Bull 3X Shares Index.
Wall Street continues to cheer the prospects of an upturn in the economy, and the mood is distinctly better this year than last. The S&P 500 index hit new highs in early March, and analysts are predicting an upturn in profits this year as well. Investors are acquiring growth stocks at an impressive clip, and one of the best is the Direxion Daily Industrials Bull 3X Shares ETF.
In the investment world, “3x leveraged” involves borrowing money to purchase stock, and leveraging your down payment by many times. This risk can be magnified by overpaying for the stock or allowing the stock to underperform. Investors usually borrow 3x the amount of money they invest. For example, if an investor invests $10,000 in a 3x leveraged ETF, the ETF will borrow another $30,000 from a bank.