3 Leveraged ETFs That Aggressive Investors Should Be Buying Now

  • These three leveraged ETFs to buy can juice your returns, but they come with much higher risk.
  • Direxion Daily S&P 500 Bull 2x Shares (SPUU): This ETF is an aggressive play on America’s most popular index. 
  • ETRACS 2xMonthly Pay Leveraged U.S. Small Cap High Dividend ETN Series B (SMHB): This ETN provides a healthy monthly distribution.
  • Direxion Daily Small Cap Bull 3x Shares (TNA):This is an amped-up bet on the Russell 2000 Index
Leveraged ETFs to Buy - 3 Leveraged ETFs That Aggressive Investors Should Be Buying Now

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If you’re interested in private equity, there might be a cheaper solution through these three leveraged ETFs to buy. What does that have to do with private equity? Bear with me, and I’ll explain.

Financial Times contributor Stuart Kirk is a former portfolio manager. In May, Kirk wrote a piece discussing why the contrarian investor is warming to private equity after years of criticizing the industry. Kirk points out research from AQR Capital Management that suggests you’d be better off buying small-cap funds on margin, providing the leverage of PE funds without the higher costs. 

He finishes by recommending the iShares Listed Private Equity ETF (OTCMKTS:IPPIF), which trades on the London Stock Exchange. It tracks the S&P Listed Private Equity Index and charges a reasonable 0.75%. Unfortunately, no such product exists in the U.S. 

Kirk’s article got me thinking about leveraged ETFs to buy. I’ll try to find three for aggressive investors that charge close to 0.75%.

Direxion Daily S&P 500 Bull 2x Shares (SPUU) 

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Direxion Daily S&P 500 Bull 2x Shares (NYSEARCA:SPUU) seeks to generate daily investment returns that are 200% of the performance of the S&P 500. It is not something you buy for long-term returns of 200%. Launched in May 2014, the ETF has $122 million in net assets and charges 0.61%. I’ll admit that my goal was to select small-cap names, as discussed in the introduction. However, it charges less than any other leveraged ETF on my radar. 

As I said, it’s intended to deliver a return of 200% of the S&P 500 for a single day. As a result, when the index is down by 1%  on a given day, the ETF would lose approximately 2%. Over the past five years, SPUU has had an annualized total return of 24.1%. That is 53% higher than the SPDR S&P 500 ETF (NYSEARCA:SPY). 

But again, remember that the losses are also amplified. So, for example, the SPY total return in 2022, a down year, was -18.2%, compared to -38.7% for SPUU. Unless you are extremely risk-tolerant, you will not be able to withstand these downturns. Govern yourself accordingly.   

ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN Series B (SMHB)

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ETRACS Monthly Pay 2xLeveraged US Small Cap High Dividend ETN Series B (NYSEARCA:SMHB), if nothing else, has one of the longest names of a fund traded on a U.S. exchange. The fund’s website states that the ETF is “designed to provide 2 times leveraged long exposure to the compounded monthly performance of the Solactive US Small Cap High Dividend Index.”

Launched in November 2018, SMHB has $35 million in net assets and charges 0.85%. The index tracks the price movements of 100 small-cap stocks traded on U.S. stock exchanges with high forward distribution yields. 

If you’re not familiar with ETNs (exchange-traded notes), they are similar to ETFs in that they’re both designed to track the performance of an index or benchmark. However, unlike the ETF, the ETN doesn’t own the stocks. Instead, it holds unsecured debt issued by a bank.

Investors profit when they sell their shares or the unsecured debt matures. In the case of SMHB, the debt is issued by UBS (NYSE:UBS). Noteholders also generate yield through monthly distributions. In 2023, they were $1.1303, down from $1.5764 in 2022.

One of the biggest risks of this ETN is that small-cap stocks have not done well in recent years. SMHB has a one-year return of 14.1% through June 4, its year-to-date return is -17%.

Direxion Daily Small Cap Bull 3x Shares (TNA)

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Direxion Daily Small Cap Bull 3x Shares (NYSEARCA:TNA) is the oldest of the three ETFs, launched in November 2008. It also has the most net assets, $1.9 billion, but charges 1.08%, the highest of the trio. 

TNA seeks a return that is 300% of the single-day return of the Russell 2000 Index. It aims to rise by approximately 300% of the index’s daily gains. However, it also loses approximately 3x the index’s losses on a given day. 

Compared to SPUU and the S&P 500, TNA is the more volatile. Since its inception in November 2008 through May 31, its annualized total return is 7.54%. In comparison, the Direxion Daily Small Cap Bear 3x Shares (NYSEARCA:TZA) seeks a daily return that is -300% of the Russell 2000. It has an annualized total return of -48.52%. 

Over 16 years, even small-cap stocks have delivered reasonable returns. But again, these are not ETFs you should own for a long-term hold. The reason to buy these funds is because you think the near-term direction of the benchmark index is higher. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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