Best Leveraged or Inverse ETFs Midway in Q4

The U.S. stock market is exhibiting volatility midway through the fourth quarter. After peaking on optimism surrounding corporate growth under President-elect Donald Trump, Wall Street lost momentum last week due to sticky inflation and the Fed’s hawkish comments.The uncertain environment has resulted in increased demand for leveraged and inverse-leveraged ETFs as these fetch outsized returns on quick market turns in a short span. We have highlighted a bunch of the best-performing leveraged or inverse leveraged ETFs that are leading over the past month. These include 2x Bitcoin Strategy ETF BITX, Direxion Daily Semiconductor Bear 3x Shares SOXS, MicroSectors Gold Miners -3X Inverse Leveraged ETN GDXD, Direxion Daily Regional Banks Bull 3x Shares DPST and MicroSectors Travel 3x Leveraged ETN FLYU. The funds will remain investors’ darlings, provided sentiments remain similar.Current TrendsMarket expectations for interest rate cuts have come down materially and Federal Reserve Chair Jerome Powell signaled that the central bank is not in a hurry to slash rates, citing ongoing economic growth and a solid job market. Per CME FedWatch Tool, traders increased bets that the Fed will not change rates at its December meeting, pricing in a roughly 42% chance versus roughly 14% a month ago.  Powell, in the latest meeting, slashed interest rates for the second time this year. The key interest rate was cut by 25 bps, bringing down the benchmark rate to 4.5%-4.75%, following the 50-bps cut in September 2024. Lower interest rates generally lead to reduced borrowing costs, helping businesses to expand their operations more easily and resulting in increased profitability. This, in turn, stimulates economic growth and provides a boost to the stock market.Meanwhile, the market is betting that the second Trump administration will provide a boost to stocks, given his more market-friendly policies. Trump's policies on restricting illegal immigration, enacting new tariffs, lowering taxes and reducing regulations may boost the economy but also accelerate inflation, limiting the Federal Reserve's ability to cut rates. The anticipation of greater tariff barriers and a step to move manufacturing back home is expected to drive stocks higher (read: 5 Sector ETFs to Gain Under Trump Presidency).Leveraged and Inverse-Leveraged ETFsLeveraged and inverse-leveraged ETFs either create a leveraged long/short position, an inverse long/short position, or a leveraged inverse long/short position in the underlying index through the use of swaps, options, futures contracts or other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend (see: all the Inverse Equity ETFs here). However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performance could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months). Investors should note that these products are suitable only for short-term traders as these are rebalanced on a daily basis. Further, liquidity can be a big problem as it can make the products more expensive than they appear.2x Bitcoin Strategy ETF (BITX) – Up 84.1%2x Bitcoin Strategy ETF is a leveraged Bitcoin-linked ETF that seeks to provide daily investment results that correspond generally to twice the performance of the S&P CME Bitcoin Futures Daily Roll Index. It has AUM of $2 billion and an expense ratio of 1.85% (read: Trump Wave Drives Bitcoin Near $90K: 5 ETF Leaders). Direxion Daily Semiconductor Bear 3x Shares (SOXS) – Up 40.2%Direxion Daily Semiconductor Bear 3x Shares targets the semiconductor corner of the technology sector with three times inverse leveraged exposure to the NYSE Semiconductor Index. It has amassed about $679.8 million in its asset base while charging 88 bps in fees per year. Volume is good as it exchanges 51.4 million shares per day on average. MicroSectors Gold Miners -3X Inverse Leveraged ETN (GDXD) – Up 33.8%MicroSectors Gold Miners -3X Inverse Leveraged ETN seeks to offer three times inverse leveraged exposure to the S-Network MicroSectors Gold Miners Index. It has accumulated $66 million in its asset base and trades in an average daily volume of 1 million shares. GDXD charges 95 bps in annual fees.Direxion Daily Regional Banks Bull 3x Shares (DPST) - Up 33%Direxion Daily Regional Banks Bull 3x Shares seeks to deliver three times the returns of the S&P Regional Banks Select Industry Index, charging 90 bps in fees per year. DPST has accumulated $885.7 million in its asset base and trades in a moderate volume of around 1.2 million shares a day on average (read: Trump Win Fuels U.S. Stock Surge, Leveraged ETFs Soar).MicroSectors Travel 3x Leveraged ETN (FLYU) – Up 26.2%MicroSectors Travel 3x Leveraged ETN offers three times exposure to the performance of the MerQube MicroSectors U.S. Travel Index. It has accumulated $9.7 million in its asset base and charges 95 bps in annual fees. MicroSectors Travel 3x Leveraged ETN trades in a paltry volume of 2,000 shares per day, on average.Want key ETF info delivered straight to your inbox?Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.Get it free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free reportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks