Top 10 Leveraged Long, Short U.S. Sector ETFs

NEW YORK ( ETF Digest) -- Leveraged issues have been the subject of great controversy. Some believe, mistakenly in our opinion, short leveraged products particularly were in some ways responsible for enhancing stock market declines during the 2008 bear market. These views are mistaken since there were many other products (options and futures) that allowed investors to short major market indexes. 

Critics suggest that since there was and is no "uptick" rule for shorting this enhanced market declines. But, all one had to do was watch a live market streaming tape during the worst of the declines and you would see plenty of upticks with the decline.

Also, critics are more correct to point to presumed tracking inefficiencies. A typical investor would complain after buying one of these products and see a few months later they didn't match the expected two or three times the index or ETF. This was primarily due to longer holding periods when periods of high periods of volatility persisted combined with compounding problems given daily tracking methodologies used by sponsors. We've written more about this in this article .

One thing remains clear when dealing with leveraged issues of all types--they must be traded and used tactically. They're not "buy and hold" products, but then neither are alternative products like options or futures. Investors wishing to participate in these issues must understand the higher risks associated with these including tracking issues cited above. Investors must be sophisticated and experienced in their dealing employing strategies to mitigate higher risks associated with these products.

We have found that successfully dealing in these requires a technically-based approach.

Leveraged issues can help investors hedge their long exposure tactically using inverse and/or leveraged short issues. Oddly there may be more liquidity in leveraged issue versus -100 inverse issues. Also if an investor senses they missed a long or short move and wished to catch-up to the new trend then a leveraged issue can help them achieve at over a short period.  

We're not ranking these ETFs favoring one over another so don't let the listing order mislead you. The current list of ETFs may change in the future as based on market ever changing market trends various sectors can wax and wane in liquidity and performance. In other words, whatever sector is "hot" at the moment will attract the assets.

Although we may use some of these in ETF Digest portfolios it's not our intention to recommend one over another. That said, generally the easier and more efficient trading is found with those issues offering the best liquidity. In our experience, and given the potential volatility and liquidity concerns "limit orders" are always the best method to insure a more satisfying exposure.

ProShares and Direxion Shares dominate the offerings in this category. The following charts are based on weekly presentations featuring 22 period moving averages, a Relative Strength indicator and conventional MACD moving averages. Not shown but perhaps referred to are Tom DeMark indicators which we use in conjunction with other proprietary indicators to determine positions. DeMark indicators are available to ETF Digest Premium Members.  

To determine positions it is often most useful to track the relevant indexes and/or conventional ETFs to which these leveraged products are linked versus these issues alone. Often erratic behavior of the leveraged issues can alter what might ordinarily be the right position. Further, the best experience in dealing with these issues is to use limit orders when engaging in them and keying those off the underlying indexes. Therefore, it's important in our opinion to remember to remain disciplined and systematic in using these issues. Due to occasional tracking errors caused by high volatility combined with compounding issues it's vital that these products are used for trading purposes--just inspecting the YTD performance data reflects this. As such technical analysis is vital in determining positions in our opinion.

ProShares Ultra 2 X Bull Financial Sector ETF (UYG) & ProShares 2 X Bear Financial Sector ETF (SKF)

 

UYG & SKF follow the Dow Jones Financial Index (200%). The two ETFs would both be linked to the trading action with unleveraged IYF (iShares Dow Jones Financial ETF). It would make sense to follow and use IYF to signal most trades given they both track the same index. Further, there may be more tracking variation with the leveraged issues from the basic index while there is less with IYF. These variations must be accepted by traders as going with the territory. This guidance and admonition applies throughout these leveraged sectors.

 

The funds were launched in January 2007. The expense ratio is .95% for both. AUM (Assets under Management) equal $890 million and average daily trading volume is 1.3M shares. As of early March 2012 the YTD return was 26.70%. The one year return was -22.84%.

 

SKF has the same overall features. The latter part of this statement applies to all leveraged long/short ETFs that follow. AUM equal $286 million and average daily trading volume is 1.5M shares. The YTD return was -22.40%. The one year return was -17.18%.

 

 

 

 

Direxion Shares 3x Bullish Financial Sector ETF (FAS) & Direxion Shares 3x Bearish Financial ETF (FAZ)

 

FAS & FAZ follow the Russell 1000 Financial Services Index. The funds were launched in November 2008. The expense ratio is .95%. AUM (FAS) equal $1.4 billion and average daily trading volume is 12M shares. As of early March 2012 the YTD return was 42.67%. The one year return was -43.10%.

 

FAZ AUM equal $914 million and average daily trading volume is 16M shares. As of early March 2012 the YTD return was -32.64%. The one year return was -34.73%.

 

 

 

 

ProShares Ultra 2 X Energy Sector Bull ETF (DIG) & ProShares 2 X Energy Sector Bear ETF (DUG)

 

DIG & DUG follow the Dow Jones US Energy Sector Index (+/- 200%). The funds were launched in January 2007. The expense ratios are .95%. AUM (DIG) equal $284 million and average daily trading volume is 654K shares.  As of early March 2012 the YTD return was 19.45%. The one year return was -13.45%.

 

DUG AUM equal $78 million and average daily trading volume is 796K shares. As of early March 2012 the YTD return was -17.60%. The one year return was -23.56%.

 

 

 

 

Direxion Shares 3x Bullish Energy Sector ETF (ERX) & Direxion Shares 3x Bearish Energy ETF (ERY)

 

ERX & ERY follow the Russell 1000 Energy Index. The funds were launched in November 2008. The expense ratios are .95%. AUM (ERX) equal $378 million and average daily trading volume is 2.8M shares. As of early March 2012 the YTD return was 27.13%. The one year return was -31.19%.

 

ERY AUM equal $95 million and average daily trading volume is 3.1M shares.  As of early March 2012 the YTD return was -23.70%. The one year return was -40.48%.

 

 

 

 

 

ProShares Ultra Real Estate Bull ETF (URE) & ProShares 2 X Real Estate Bear ETF (SRS)

 

URE & SRS follow the Dow Jones U.S. Real Estate Index (+/- 200%). The funds were launched in January 2007. The expense ratios are .95%. URE AUM equal $371 million and average daily trading volume is 307K shares.  As of early March 2012 the YTD return was 12.14%. The one year return was -2.35%.

 

SRS AUM equal $183 million and average daily trading volume is 412K shares.  As of early March 2012 the YTD return was -12.21%. The one year return was -29.19%.

 

 

 

Direxion Shares 3x Bullish Real Estate Sector ETF (DRN) & Direxion Shares 3x Bearish Real Estate ETF (DRV)

 

DRN & DRV follow the MSCI REIT Index. The funds were launched in July 2009. The expense ratio is .95%. AUM (DRN) equal $119 million and average daily trading volume is 344K shares. As of early March 2012 the YTD return was 16.21%. The one year return was -15.22%.

 

DRV AUM equal $28 million and average daily trading volume is 162K shares. As of early March 2012 the YTD return was -16.65%. The one year return was -53.29%.

 

 

 

 

ProShares Ultra 2 X Semiconductor Bull ETF (USD) & ProShares 2 X Semiconductor Bear ETF (SSG)

 

USD & SSG follow the Dow Jones Semiconductor Index (+/- 200%) The funds were launched in January 2007. The expense ratios are .95%. USD AUM equal $49 million and average daily trading volume is 45K shares. As of early March 2012 the YTD return was 30.59%. The one year return was -4.80%.

 

SSG AUM equal $19 million and average daily trading volume is 39K shares. As of early March 2012 the YTD return was -25.42%. The one year return was -23.51%.

 

 

 

 

Direxion Shares 3x Bullish Semiconductor Sector ETF (SOXL) & Direxion Shares 3x Bearish Semiconductor ETF (SOXS)

 

SOXL & SOXS follow the PHLX Semiconductor Sector Index. The funds were launched in March 2010. The expense ratio is .95%. AUM equal $284 million and average daily trading volume is 654K shares.  As of early March 2012 the YTD return was 26.70%. The one year return was -22.84%.

 

SOXS AUM equal $284 million and average daily trading volume is 654K shares.  As of early March 2012 the YTD return was 26.70%. The one year return was -22.84%.

 

 

 

 

Direxion Shares 3x Gold Miners Bull ETF (NUGT) & Direxion Shares 3x Gold Miners Bear ETF (DUST)

 

NUGT & DUST follow the NYSE ARCA Gold Miners Index. The funds were launched in December 2010. The expense ratio is .95%. NUGT AUM equal $143 million and average daily trading volume is 981K shares. As of early March 2012 the YTD return was 32.75%. The one year return was -29.19%.

 

DUST AUM equal $12 million and average daily trading volume is 213K shares. As of early March 2012 the YTD return was -33.78%. The one year return was -31.04%.

 

 

 

 

 

There will be many changes to this line-up as market sentiment switches from one sector to another. Both ProShares and Direxion Shares have a good line-up of U.S. sectors and perhaps those will rise to the fore with changing market conditions. We've only included the sectors on the move in this write-up. With each quarterly update sector rotation can occur changing those ETFs featured. The competition between ProShares and Direxion shares remains intense. To make these issues perform at their optimum level from a trading perspective the more liquidity the better.

 

One important feature to watch is the flow of funds (AUM) from bull to bear and vice versa. This type of movement can indicate early which way professional investors may be leading markets.

Once again these issues aren't for everyone. They're to be used strategically and tactically either to speculate or add a quick hedge when needed. In our opinion a technical approach generally works best and this includes remaining disciplined and systematic at all times. 

For further trading information about portfolio structures including technical indicators including DeMark indicators using these or other leveraged ETFs see ETF Digest.

As of this writing we have no current positions in any of the aforementioned products.

You may address any feedback to: feedback@etfdigest.com   

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The ETF Digest has no current leveraged positions from this list.

(Data is believed reliable and is obtained from ETF sponsors and other sources.)

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Dave Fry is founder and publisher of ETF Digest, Dave's Daily blog and the best-selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management, published by Wiley Finance in 2008. A detailed bio is here: Dave Fry.

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