A little over a year ago when the S&P 500 (SPY) was more than 30% below its all-time high, it seemed unlikely that the equity markets would be just days away from a sharp and sudden turnaround that would carry the large-cap index up 85% from its low and the Russell 2000 (IWM) to gains of 130%.
But loads of fiscal and monetary support from the government and the Fed have done just that. The underlying macroeconomic backdrop is still in the process of improving and has a ways to go to return to pre-pandemic levels, but investors feel confident we'll get there and are positioning themselves accordingly.
During this rally, there have been winners and there have been WINNERS.
Not surprisingly, leveraged ETFs dominate that list. While they're designed to be nothing more than short-term trading vehicles, they can deliver huge returns during longer holding periods if the markets move steadily higher without a great deal of volatility, exactly the type of environment we've seen over the past year. According to ETF Action, there is currently about $50 billion invested in leveraged funds.
Cyclicals and recovery plays, which were especially beaten down during last year's bear market, have rebounded strongly, especially considering the low base value that has allowed these ETFs to deliver eye-popping numbers.
From the end of the 1st quarter of 2020 to the end of the 1st quarter of 2021, 225 ETFs have gained more than 100%, 50 returned more than 200% and 5 are up more than 500%.
But there's one undisputed king of ETF performance over the past year - the Direxion Daily Retail Bull 3x Shares ETF (RETL).
It's returned an incredible 1,612% during that 12-month period.
Part of that number is driven by timing. March 31st of last year was right at or near the bottom of the bear market depending on which sector you're looking at. Sentiment could not have been worse for retail, leisure, hospitality and travel stocks since those figured to be the most impacted by the economic shutdown.
Therefore, they were also among the biggest rebound stories when the economy showed signs of recovery and vaccines were developed and distributed. There's still a lot of damage in these sectors that needs to be cleaned up, but there's little doubt that sentiment has improved significantly compared to where it was a year ago.
The interesting thing is that this 1,600% return figure would have been even higher had the year ended in January instead of March. At its peak, RETL was up more than 2,000% over the 10-month period. Who knows how many people were buying and holding leveraged ETF portfolios when the economy was cratering, but congratulations to those who did!