While non-leveraged ETFs hold only shareholder-leveraged equity and track an underlying index or asset class, leveraged ETFs are designed to amplify the returns of an underlying index or asset class, typically by two or three times the daily performance. They achieve this through the use of derivatives and debt, making them popular among traders seeking high-risk, high-reward opportunities. However, as always, the potential for magnified gains also comes with increased risk, especially over longer holding periods due to compounding effects.
As a result, they are more suitable for short-term trading, as their compounding effect can lead to significant deviations from the expected returns over longer periods.
Here are some of the best leveraged ETFs across various asset classes:
1. ProShares UltraPro QQQ (TQQQ) Price & Chart:
Focus: Offers 3x the daily daily long leverage to the NASDAQ-100 Index, or the QQQ ETF.
TQQQ Performance:
| Year | Performance |
|---|---|
| 2024 | +59.23% |
| 2023 | +198.26% |
| 2022 | -79.08% |
| 2021 | +82.98% |
| 2020 | +110.05% |
Overview: TQQQ is one of the most traded leveraged ETFs, giving traders the opportunity to magnify gains during strong tech rallies. Its exposure to Nasdaq listed companies like Apple, Microsoft, and Nvidia makes it attractive during times of strong investor confidence in the technology sector. However, TQQQ’s high volatility requires traders to monitor positions closely, as downturns in the tech sector can result in sharp losses, as we saw in 2022.
2. Direxion Daily S&P 500 Bull 3X Shares (SPXL) Price & Chart:
Focus: Offers 3x the daily performance of the S&P 500 Index.
SPXL Performance:
| Year | Performance |
|---|---|
| 2024 | +78.77% |
| 2023 | +69.46% |
| 2022 | -56.55% |
| 2021 | +98.72% |
| 2020 | +9.63% |
Overview: The SPXL is a leveraged option for traders bullish on the broader US economy, providing S&P 500 bulls 3x the daily long leverage. As you may already know, the S&P 500 has diversified exposure to sectors like technology, healthcare, and financials, making it a popular choice during periods of economic expansion. However, while SPXL offers the potential for significant upside during bullish markets, traders should be wary of its downside risk during market corrections.
3. ProShares Ultra Bloomberg Crude Oil (UCO) Price & Chart:
Focus: UCO delivers 2x the daily performance of crude oil prices as tracked by the Bloomberg Commodity Index.
UCO Performance:
| Year | Performance |
|---|---|
| 2024 | -2.15% |
| 2023 | -13.89% |
| 2022 | +39.71% |
| 2021 | +139.26% |
| 2020 | -92.91% |
Overview: UCO is designed for traders with a focus on commodities, or more specifically, energy markets and is particularly useful for capitalising on short-term trends in crude oil prices. The underlying price can be influenced by factors like geopolitical tensions, OPEC production cuts, and global demand-supply dynamics. However, the volatility of oil prices can lead to sharp gains or losses in leveraged ETF, as we can see over the last few years, making UCO a high-risk option for traders without deep knowledge of energy markets.
4. ProShares Ultra Gold (UGL) Price & Chart:
Focus: Provides 2x the daily performance of the price of gold bullion, as measured by the Bloomberg Gold Subindex.
UGL Performance:
| Year | Performance |
|---|---|
| 2024 | +51.12% |
| 2023 | +15.56% |
| 2022 | -7.59% |
| 2021 | -12.30% |
| 2020 | +39.04% |
Overview: UGL is ideal for traders looking to amplify their exposure to gold, often viewed as a safe-haven asset. Its 2x leverage allows for greater gains during gold rallies, as we have seen so far this year, which are typically driven by economic uncertainty, inflation fears, or weakening of fiat currencies. However, UGL, like other leveraged ETFs is not immune to risks, as falling gold prices or stabilising markets can lead to heightened losses. There are various ways to trade gold that one might want to consider alongside ETFs.
5. Direxion Daily Semiconductor Bull 3X Shares (SOXL) Price & Chart:
Focus: Provides 3x the daily performance of the PHLX Semiconductor Sector Index.
SOXL Performance:
| Year | Performance |
|---|---|
| 2024 | -10.17% |
| 2023 | +226.98% |
| 2022 | -85.66% |
| 2021 | +118.84% |
| 2020 | +69.99% |
Overview: As you can see, the SOXL leveraged ETF provides investors with leveraged exposure to semiconductor companies like Nvidia, AMD, and Taiwan Semiconductor Manufacturing. With the semiconductor industry a key player in innovative markets such as artificial intelligence, 5G, and cloud computing, SOXL is a favourite among traders during tech rallies. However, its high leverage and sector concentration make it susceptible to significant drawdowns during market corrections or supply chain disruptions. The general market decline in 2022 resulted in SOXL declining more than 85% that year. Unleveraged semiconductor ETFs such as the SMH provide an alternative entry for those looking for exposure to the sector.
Who Should Consider Leveraged ETFs?
Leveraged ETFs are more suitable for experienced traders with a high risk tolerance who are focused on short-term opportunities. They are not recommended for long-term investors or those seeking stable, predictable returns. For example, a trader believing the price of gold will rally over the next few days or weeks can take a position in the UGL with a view to amplifying their return if their call is correct.
