Top 10 Leveraged Alternative ETFs

NEW YORK ( ETF Digest) -- Why would an investor want to invest in one of these sub-sectors? One reason is portfolio protection against the deleterious effects of rising energy prices. These negative effects are eventually manifested in the stock market, through demand destruction, higher producer costs, and ultimately, less money in consumers' pockets.  Another reason is the general protection against inflation.  While the Fed denies it, some still expect the launch of QE3.  Most of the commodity sub-sectors will provide a measure of protection here. However, if that is the extent of the reason, there are Alt ETFs that offer a basket of commodities across all of these sub-sectors.   

Another reason is protection against erosion of the dollar's buying power.  For this, an entire other category of Alt ETFs are specifically suited -- currency ETFs.  There are many ETFs that invest in foreign currencies. By so doing, investors benefit from the appreciation of that currency relative to the dollar (which is the same thing as saying the depreciation of the dollar in terms of another currency). This can be the major currencies (Japanese Yen, Euro, British Pound, etc.) or more exotic currencies, like those of the BRIC countries (Brazil, Russia, India and China).  Again, there are baskets for investors that do not want to be country-specific.

There are fewer leveraged issues within the Alt sector to choose from. Leveraged issues fill several needs away from unleveraged issues available. Leveraged issues can help investor's hedge positions more quickly with greater impact. This aspect can also satisfy speculators wishing to catch up with fast-moving markets if late to a rapidly developing trend. In the latter case, if investors are successful in making up ground, they then can convert later to an unleveraged ETF.

One thing remains clear when dealing with leveraged issues of all types -- they must be traded. Investors wishing to participate in these issues must understand the higher risks associated with them including tracking issues, volatility and compounding effects given daily tracking features. Investors must be sophisticated and experienced in dealing strategies and products that inherently possess higher risks. We have found that successfully dealing in these requires a technical approach.

There is little purpose in ranking these ETFs given their different market coverage. While some track gold for example, perhaps liquidity considerations may favor one over another but little else.

ProShares and Deutsche Bank / PowerShares make up the featured listings. Newer shares from Velocity Shares are also mentioned as possibilities.  

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 our positions.

As mentioned above, the most important thing to know about leveraged issues is they must be managed actively. Given index tracking and compounding issues it's hard to sit on a position in a buy and hold fashion unless the trends are both strong and durable. This is of course impossible to know initially upon entering fresh positions.

To determine positions it is often most useful to track the relevant index, spot price or futures continuation contracts 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 matching those as best you can with the underlying indexes. Therefore, it's important in our opinion to remember to remain disciplined and systematic in using these issues.

We're presenting both the long and short leveraged major equity market ETFs in pairs. This is because there is a back and forth to the AUM (Assets under Management) for each bull and bear product given prevailing market trends. This alters liquidity considerations.

PowerShares/DB Double Long Gold ETN (DGP) & PowerShares/DB Double Short Gold ETN (DZZ)

DGP & DZZ follow the Deutsche Bank Liquid Commodity Index-Optimum Yield Gold (200%). The funds were launched in February 2008. The expense ratio is .75%.

DGP AUM equal $572 million and average daily trading volume is 758K shares. As of early March 2012 the YTD return was 18.13%. The one year return was 33.68%.

DZZ AUM equal $80 million and average daily trading volume is 1.4M shares. As of early March 2012 the YTD return was -19.63%. The one year return was -44.56%.

One important factor investors might consider is that generally, not always, the bearish leveraged issue may yield better returns when "shorting it" versus being "long" the bullish issue when trends are rising. This explains high volume on bearish issues even during a bullish environment. Not everyone can make these trades clearly.

ProShares Ultra Long 2x Silver ETF (AGQ) & ProShares Ultra Short 2x Silver ETF (ZSL)

AGQ & ZSL follow the daily performance of silver bullion as measured by the U.S. Dollar fixing price for London delivery. The funds were launched in December 2008. The expense ratio is .95%. AGQ AUM equal $944 million and average daily trading volume is 2.4M shares As of early March 2012 the YTD return was 52.61%. The one year return was -32.65%.

ZSL AUM equal $234 million and average daily trading volume is 6.5 million shares. As of early March 2012 the YTD return was -41.46%. The one year return was 69.00%.

ProShares Ultra Long 2x Crude Oil ETF (UCO) & ProShares Ultra Short 2x Crude Oil ETF (SCO)

UCO & SCO follow the Dow Jones-UBS Crude Oil Sub-Index. The funds were launched in November 2008. The expense ratio is .95%. UCO AUM equal $297 million and average daily trading volume is 1.6M shares. As of early March 2012 the YTD return was 13.58%. The one year return was -13.31%%.

SCO AUM equal $153 million and average daily trading volume is 1.5 million shares.  As of early March 2012 the YTD return was -14.91%%. The one year return was 26.83%.

PowerShares/DB Double Long Base Metals ETN (BDD) & PowerShares/DB Double Short Base Metals ETN (BOM)

BDD & BOM follow the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals (200%). The funds were launched in July 2008. The expense ratio is .75%. BDD AUM equal $8 million and average daily trading volume is 10K shares. As of early March 2012 the YTD return was 30.47%. The one year return was -33.75%.

BOM AUM equal $9 million and average daily trading volume is 26K shares. As of early March 2012 the YTD return was -26.02%. The one year return was 13.09%.

Both ETFs have low AUM and trading volume is relatively light. Those wishing to utilize either should be prudent with order entry to insure reasonable fills relative to the tracking index which is available on the company's website intraday. Remember, these ETFs and sectors wax and wane in popularity and can do so quickly.

There is no index available to show since this ETN is a mix of base metals: Copper, Aluminum and Zinc.

ProShares DJ-UBS Ultra Long 2x Commodity ETF (UCD) & ProShares DJ-UBS Ultra Short 2x Commodity ETF (CMD)

UCD & CMD follow the Dow Jones-UBS Commodity Index (200%). The funds were launched in November 2008. The expense ratio is .95%. UCD AUM equals $10 million and average daily trading volume is less than 5K shares. As of early March 2012 the YTD return was 9.70%. The one year return was -28.22%.

CMD AUM equal $8 million and average daily trading volume is less than 5K shares. As of early March 2012 the YTD return was -9.27%. The one year return was 15.29%.

Both ETFs have low AUM and trading volume is relatively light. Those wishing to utilize either should be prudent with order entry to insure reasonable fills relative to the tracking index which is available on the company's website intraday. Remember, these ETFs and sectors wax and wane in popularity and can do so quickly.

PowerShares/DB Double Long Commodity ETN (DYY) & PowerShares/DB Double Short Commodity ETN (DEE)

DYY & DEE follow the Deutsche Bank Liquid Commodity Index (200%). The funds were launched in April 2008. The expense ratio is .75%. DYY AUM equal $13 million and average daily trading volume is 12K shares. As of early March 2012 the YTD return was 25.30%. The one year return was -4.25%.

DEE AUM equal $2 million and average daily trading volume is less than 3K shares. As of early March 2012 the YTD return was -10.41%. The one year return was -9.04%.

Both ETFs have low AUM and trading volume is relatively light. Those wishing to utilize either should be prudent with order entry to insure reasonable fills relative to the tracking index which is available on the company's website intraday. Remember, these ETFs and sectors wax and wane in popularity and can do so quickly.

PowerShares/DB Double Long Agriculture ETN (DAG) & PowerShares/DB Double Short Agriculture ETN (AGA)

DAG & AGA follow the Deutsche Bank Liquid Commodity Index-Optimum Yield Agriculture (200%). The funds were launched in April 2008. The expense ratio is .75%. DAG AUM equal $52 million and average daily trading volume is 56K shares. As of early March 2012 the YTD return was 5.75%. The one year return was -28.15%.

AGA AUM equal $7 million and average daily trading volume is 9K shares. As of early March 2012 the YTD return was -2.30%. The one year return was 10.70%.

Both ETFs have low AUM and trading volume is relatively light. Those wishing to utilize either should be prudent with order entry to insure reasonable fills relative to the tracking index which is available on the company's website intraday. Remember, these ETFs and sectors wax and wane in popularity and can do so quickly.

ProShares Ultra Long 2x Euro ETF (ULE) & ProShares Ultra Short 2x Euro ETF (EUO)

ULE & EUO seek daily investment results that correspond to twice (200%) the U.S Dollar price of the euro. The funds were launched in November 2008. The expense ratio is .95%. ULE AUM equals $10 million and average daily trading volume is less than 29K shares. As of early March 2012 the YTD return was 3.69%. The one year return was -11.64%.

EUO AUM equal $873 million and average daily trading volume is 3M shares. As of early March 2012 the YTD return was -6.04%. The one year return was 2.30%.

Why the big difference in returns? Some of this is due to volatility and compounding issues. Other than that there is hedging activity occurring; arbitrage between the two; and perhaps shorting the opposite ETF since those tend to erode more quickly.

Both ETFs have low AUM and trading volume is relatively light. Those wishing to utilize either should be prudent with order entry to insure reasonable fills relative to the tracking index which is available on the company's website intraday. Remember, these ETFs and sectors wax and wane in popularity and can do so quickly.

ProShares Ultra Long 2x Yen ETF (YCL) & ProShares Ultra Short 2x Yen ETF (YCS)

YCL & YCS seek daily investment results that correspond to twice (200%) the U.S Dollar price of the yen. The funds were launched in November 2008. The expense ratio is .95%. YCL AUM equals $5 million and average daily trading volume is less than 3K shares. As of early March 2012 the YTD return was -11.81%. The one year return was -.83%.

YCS AUM equal $267 million and average daily trading volume is 302K shares. As of early March 2012 the YTD return was 12.48%. The one year return was -4.34%.

Both ETFs have low AUM and trading volume is relatively light. Those wishing to utilize either should be prudent with order entry to insure reasonable fills relative to the tracking index which is available on the company's website intraday. Remember, these ETFs and sectors wax and wane in popularity and can do so quickly.

Other issues of note are more offerings from ProShares including: UGL (ProShares Ultra 2 X Gold ETF) paired with GLL (ProShares Ultra Short 2 X Bear Gold ETF); and, BOIL (ProShares Ultra 2 X Bull Natural Gas ETF) paired with KOLD (ProShares Ultra Short 2 X Bear Natural Gas ETF).

Velocity Shares also has newer issues available to utilize aggressively including: UUPT (Velocity Shares 3 X Bull Dollar ETN) paired with UDNT (Velocity Shares 3 X Dollar Bear ETN); UGLD (Velocity Shares 3 X Gold Bull ETN) paired with DSLV (Velocity Shares 3 X Bear Silver ETN); and, USLV (Velocity Shares 3 X Bull Silver ETN) paired with DSLV (Velocity Shares 3 X Bear ETN).

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. 

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.

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.

 

NEITHER THE EDITOR OR THE PUBLISHER, NOR ANY OF THEIR RESECTIVE AFFILIATES MAKE ANY GUARANTEE OR OTHER PROMISE AS TO THE RESULTS THAT MAY BE OBTAINED FROM TRADING GUIDANCE INDICATED ABOVE. IT IS FOR DEMONSTRATION PURPOSES ONLY AND IS IN NO WAY INTENDED AS INVESTMENT ADVICE.

 

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

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