When we look back at 2021, we might remember it for its remarkable calm. Sure, there were a few points where volatility spiked, most notably in late January when the VIX briefly hit 37. Beyond that, though, the VIX barely touched 30 for the entire year. Even when it did, it tended to move back down within a day or two. Once we cleared the first two months of 2021, the VIX mostly stayed below 20.
That's a great environment for leveraged ETFs. Volatility is the enemy of leverage, so extended periods of market calm can really assist in ratcheting up fund returns. With the S&P 500 returning nearly 30% and the Nasdaq 100 gaining just under that, conditions were right for some triple-levered ETFs to produce gains of 100% or more.
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A total of 14 different leveraged ETFs, mostly 3x levered but some only doubling exposure, cleared the triple digit barrier with a couple more narrowly missing the cutoff. With the energy sector winning the title of top performing sector of 2021, it's not surprising to see many energy-related names near the top of the list. The overall top 30 list, however, is actually fairly diverse. A number of different sectors and subsectors are represented. Even mid-caps make an appearance towards the end of the list!
Here's the list of the top performing leveraged ETFs for the year 2021.
Homebuilder stocks did incredibly well in 2021 on the heels of ultra-low mortgage rates, plenty of stimulus cash available to bid up home prices and a strong year for real estate in general. The sector returned roughly 50% and the Direxion Daily Homebuilders & Supplies Bull 3x Shares ETF (NAIL) outperformed all others with a gain of 168%. With the Fed looking to finally tighten monetary conditions in 2022, the homebuilder sector might have peaked, but it's been one heck of a run since the COVID recession low.
As expected, energy ETFs dominate the list with the ProShares Ultra Bloomberg Crude Oil ETF (UCO), a 2x leveraged play on crude oil futures, leading the way. In terms of energy stocks, the Direxion Daily S&P Oil & Gas Explorers & Producers Bull 2x Shares ETF (GUSH) was the winner with a return of nearly 130%. It's worth noting that this used to be a 3x ETF prior to the crude oil crash of 2020, which nearly wiped out the fund altogether. The Direxion Daily Energy Bull 2x Shares ETF (ERX) and the ProShares Ultra Oil & Gas ETF (DIG) were also big winners.
Retail made a big comeback in 2021 fueled again by a glut of stimulus cash. The retail sector specifically is represented by the Direxion Daily Retail Bull 3x Shares ETF (RETL), which produced a 101% gain. There's also the Direxion Daily Consumer Discretionary Bull 3x Shares ETF (WANT) coming in right behind it with an 85% return.
The second best performing sector of 2021 was real estate, thanks to soaring property values and rental rates. Pure real estate exposure, however, was the biggest winner. The Direxion Daily MSCI Real Estate Bull 3x Shares ETF (DRN) was one of only two leveraged ETFs to return more than 150% on the year (although the Breakwave Dry Bulk Shipping ETF (BDRY), a non-leveraged fund, was the undisputed winner, returning nearly 300%). The ProShares Ultra Real Estate ETF (URE), a fund which offers a comparatively more most 2x exposure, easily made the cut as well.
Other ETFs worth noting:
The banking sector also did well as the economic recovery from COVID steadily progressed. The Direxion Daily Financial Bull 3x Shares ETF (FAS) gained well over 110% and represents broad sector coverage, but the regional banks also performed strongly. The Direxion Daily Regional Banks Bull 3x Shares ETF (DPST) also hit the triple digit mark.
The growth trade was in full swing in 2021, save for a couple of brief periods where value had a run. High beta stocks, as a result, also did well as evidenced by the 129% return of the Direxion Daily S&P 500 High Beta Bull 3x Shares ETF (HIBL).
The Direxion Daily Mid Cap Bull 3x Shares ETF (MIDU) and the ProShares UltraPro MidCap 400 ETF (UMDD) are really the only funds that falls squarely outside the large-cap definition. The S&P MidCap 400 Index trailed the S&P 500 by about 5% on the year, but the leveraged versions of the index still managed to gain more than 70%.
The Direxion Daily Industrials Bull 3x Shares ETF (DUSL) and the ProShares Ultra Basic Materials ETF (UYM) sneak in at the bottom of the top 30 list wrapping up what was a good year for cyclical sectors overall.