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Reviewed By Reviewed By Updated: Oct 3, 2023, 4:19pm Leverage amplifies both investment returns and risk. But with greater risk comes greater rewards, at least when times are good. When an investment doesn’t work out, leverage can make things a lot more painful. For this reason, only experienced investors with a high risk tolerance should employ leverage. Investing strategies that employ leverage can be complicated, making leveraged ETFs a better option for many investors. This class of exchange-traded funds aims to provide investors with a return of a specific multiple to an underlying asset class or benchmark. Take the S&P 500, for example. If the S&P 500 returned 20% in a single session, a leveraged ETF with three times daily leverage would return 60% that day. If you had invested $100 in the leveraged ETF, you would have closed the day with a $60 profit. To help you choose the best funds for your short-term investing strategies, Forbes Advisor has compiled a list of what we believe are among the best leveraged ETFs available on the market. Note that our list excludes inverse ETFs, which we cover elsewhere. Why you can trust Forbes Advisor Our editors are committed to bringing you unbiased ratings and information. Our editorial content is not influenced by advertisers. We use data-driven methodologies to evaluate financial products and companies, so all are measured equally. You can read more about our and the for the ratings below. The Best Leveraged ETFs of October 2023 $16.7 billion 3x 0.86% $16.7 billion 3x 0.86% The largest ETF in the leveraged space, the ProShares UltraPro QQQ aims to track the daily performance of the with three times leverage. This means investors can gain amplified exposure to 100 of the largest non-financial stocks in this key market index. Despite being unsuitable for long-term investors, TQQQ has an averaged annual return over the past five years well above the Nasdaq Composite’s. With roughly $17 billion in total net assets, TQQQ is the cheapest fund on our list. It also offers excellent liquidity. TQQQ had an average daily trade volume of 111 million shares over the past 12 months, easily the highest trading volume in the leveraged ETF group. $6.3 billion 3x 0.94% $6.3 billion 3x 0.94% The Direxion Daily Semiconductor Bull 3X Shares is the second-largest ETF in the leveraged space, with over $6 billion in net assets. The fund aims to deliver three times the daily performance of the ICE Semiconductor Index, which tracks the 30 largest U.S.-listed . Its popularity may sound surprising, but semiconductors, especially graphic processing units, are crucial to powering generative AI applications. This in turn has led to the powering of investment portfolios, headlined by Nvidia’s surge to become the sixth company valued at one trillion dollars in May 2023. SOXL has been the story of the leveraged sector, nearly tripling so far this year off the back of the hype. While leverage decay renders it unsuitable for long-term holds, if one seeks a high conviction bet on the short-term move of semiconductors, the fund is available for a 0.94% expense ratio. $3.8 billion 2x 0.89% $3.8 billion 2x 0.89% The ProShares Ultra S&P 500 ETF delivers two times exposure to the daily returns of the , offering investors a means to place short-term bets on the direction of some of the largest U.S. stocks. The expense ratio is cheap for the leveraged space at 0.89%, while liquidity is deep with an average daily trade volume of 3.7 million shares over the past 12 months. The ETF has even generated an average annual return easily topping the S&P 500 Index’s over the past five years. $2.1 billion 3x 1.06% $2.1 billion 3x 1.06% The Direxion Daily 20+ Year Treasury Bull 3X Shares ETF provides leveraged exposure to a daily factor of three times the ICE U.S. Treasury Bond Index. Given the sensitivity of the underlying index to interest rate and inflation risk, the past year has not been kind to TMF investors. The fund is down more than 110% since the start of 2022. However, for short-term hedging against interest rate movements or if investors are seeking to place high conviction tactical bets, this ETF offers levered exposure for a reasonable expense ratio of 1.06%. The liquidity of the ETF is also deep, with an average of about 55 million shares trading daily over the past 12 months. $396.1 million 2x 0.94% $396.1 million 2x 0.94% The Direxion Daily Energy ETF offers investors exposure to the daily returns of the S&P Energy Select Sector Index with two times leverage. Prior to April 2020, the fund previously offered three times exposure. The index is market-cap weighted, meaning it is concentrated among the few firms that dominate the energy sector, such as Exxon and Chevron. Energy prices have come down in 2023, meaning the fund has performed poorly, falling more than 1% despite the rest of the stock market surging. ERX’s expense ratio is 0.94%, while its net assets are near $400 million. $284.1 million 1.5x 0.95% $284.1 million 1.5x 0.95% The ProShares Ultra VIX is an ETF that allows traders to speculate on, or hedge against, short-term volatility in the equity market. It offers exposure with a one and a half times leverage ratio to the daily performance of the , often known colloquially as the “fear index,” given how it is used to gauge investors’ expectations around future market volatility. Because high volatility tends to correlate with equity drawdowns, UVXY can be used to protect investors in the short-term by offering returns negatively correlated with long equity positions. With an average daily trading volume of $328 million over the past 30 days, UVXY trades with excellent liquidity. The expense ratio is 0.95%. $176 million 3x 0.98% $176 million 3x 0.98% The Direxion Daily Homebuilders & Supplies ETF is the smallest fund by net assets on this list. NAIL provides exposure with a three times daily leverage factor to the Dow Jones US Select Home Index, which is a market-cap weighted index that comprises firms operating in the U.S. residential construction and homebuilding industries. NAIL is the best performer on this list, surging about 145% in the past 12 months. However, NAIL’s five year average annual return is middle of the pack. It highlights, like all leveraged ETFs, that these are not usually long-term investment vehicles. $203 million 3x 0.95% $203 million 3x 0.95% The ProShares UltraPro Russell2000 ETF provides investors with three times the daily returns of the . This means it is primarily small-cap focused, but the ETF can also include midcaps and microcaps. Specifically, it strives to hold the securities ranked by size from 1,001 to 3,000 in the , which covers around 10% of the index’s total market capitalization. URTY charges an expense ratio of 0.95%, and it is the second smallest ETF included on our list. Averaging 1.2 million shares of average daily trading volume over the past 12 months, the liquidity remains adequate despite having more of a small-cap focus than the other options on this list. Methodology To choose the best ETFs for this listing, we screened over 170 ETFs for the following characteristics: To learn more about our rating and review methodology and editorial process, check out our guide on . What Are Leveraged ETFs? Leveraged ETFs are exchange-traded funds aiming to amplify an underlying index’s returns. Whereas a conventional exchange-traded fund like the SPDR S&P 500 ETF (SPY) aims to duplicate the performance of the S&P 500 index over the long-term, the ProShares Ultra S&P 500 ETF (SSO) attempts to deliver three times the daily return of the index during a single session. Leveraged ETFs usually reset their gains and losses each day, which compounds the fund’s gains and losses over the long term. The funds are basically marked to market every night, starting out the next day with a clean slate as if the returns of the prior session had not existed. For this reason, investing professionals do not recommend that anyone hold leveraged ETFs over periods of time longer than a single session. How Do Leveraged ETFs Work? Let’s say an investor purchases shares of a three times leveraged ETF for $100. If the underlying index rises 10% in a single session, the investor should gain 30%, boosting the investment to $130. The leveraged ETF resets for the next session. If the underlying index drops 5% the following day, the value of the position will probably decline 15% to $110.50. As markets and stock indexes rise and fall over time, longer-term positions in leveraged ETFs can become very challenging to follow, thanks to amplified gains and losses. Who Should Invest in Leveraged ETFs Leveraged ETFs are best for experienced investors with a clear understanding of the risks involved and how leverage works. These ETFs offer an opportunity to add considerable value to your overall investment strategy for traders with significant experience, an appetite for risk and the desire to amplify daily returns in both up and down markets. In addition to offering a way to augment daily returns, particularly during periods of market volatility, leveraged ETFs can also be effectively used for hedging purposes. If enhanced returns and, or hedging strategies are your objective, leveraged ETFs can open up new opportunities. Remember to do your research and approach leveraged funds with caution, as losses can be magnified similarly to returns. What Is an Inverse Leveraged ETF? An inverse leveraged ETF aims to provide investors a multiple of the opposite of a benchmark’s performance through the use of derivative instruments like swaps and futures contracts. For example, a two times inverse leveraged ETF would provide double the opposite returns of its benchmark index. If the benchmark were the S&P 500 and the index fell 10%, the inverse leveraged ETF should gain 20%. But by the same token, if the S&P were to gain 10%, the inverse leveraged ETF should lose 20% over the same time period. The key idea in that example is “should,” because the returns on inverse ETFs can differ from the inverse of the underlying index, especially over longer periods of time. According to , between Dec. 1, 2008, and April 30, 2009, a particular benchmark index gained 2%. However, a leveraged ETF seeking to deliver twice that index’s daily return fell by 6%—and an inverse ETF seeking to deliver twice the inverse of the index’s daily return fell by 25%. To mitigate this sort of outcome, many inverse leveraged ETFs reset their returns daily. Leveraged ETF Frequently Asked Questions (FAQs) Before choosing a leveraged ETF, make sure you understand its investment objectives and strategy, as well as any risks and costs associated with the ETF. This information can be found in the fund prospectus. Always consult a financial professional before investing in any complex investment products such as leveraged ETFs. You should aim to hold a leveraged ETF for the period stated to achieve its objective returns. For example, holding a monthly leveraged ETF for more or less than a month may cause your overall returns to deviate from the stated objective since it is difficult for leveraged ETFs to provide the promised degree of returns outside of their designed period. You can use leveraged ETFs for momentum trading, but it requires a skilled hand to do so successfully. Some studies suggest momentum trading with leveraged funds is only profitable in rising markets. If you do attempt a momentum strategy with leveraged ETFs, remember that leverage can work for you and against you. This means your risks are as amplified as your potential returns. Next Up in Investing Dan Ashmore, CFA, is a financial analyst from Ireland. He writes for CoinJournal and Invezz, and has contributed analysis to Bitcoin.com, The Independent, and numerous other publications. Dan has also published a paper assessing Bitcoin’s fair price and is currently writing a book analyzing the asset through a macroeconomic lens. Additionally, he works as a sports arbitrage trader, exploiting pricing inefficiencies in the betting markets. Follow or DM him on Twitter @DanniiAshmore
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