In the current issue of U.S. News, I took a look at some of the more exotic ETFs on the market including a new breed of leveraged ETFs from Direxion that promise returns equal to three times the market's daily move. For the most part, leverage isn't a good idea for most investors (see this piece), but I did neglect the one group who will love that kind of action: Day traders.
Turns out, the 3X is catching on.
Daily trading volume is rising, points out the Vix And More blog, who recently likened trading 3X to "trying to jump in a Lamborghini while it sped by at 120 mph."
Also, it's interesting to see investment strategists recommending the funds. Jeff Saut at Raymond James (see previous post) made a call using the Direxion Small Cap Bull 3X Shares (TNA) on Friday. From his recent strategy note:
In conclusion, it’s been said, “When stocks ignore bad news that’s good news;” and last week stocks ignored bad news! Therefore, we told institutional accounts early Friday morning, on the dour employment statistics, that “The early morning weakness was likely a buying opportunity.” Accordingly, even though one of our mantras is to NEVER do anything on a Friday, we advised said accounts to “buy” positions in the ProShares Ultra S&P 500 (SSO/25.08) levered two-to-one on the upside, to buy the Direxion ETFs (TNA/28.84) levered three-to-one on the upside basis the Russell 2000, and to buy the ProShares Oil&Gas (DIG/25.50) levered two-to-one on the upside, all of which were recommended with the appropriate “downside hedged” option strategies so often mentioned in these reports. Obviously that hedging strategy looked pretty “stupid” by Friday’s closing bell; still, we continue to invest, and trade, accordingly.
Looks like leveraged ETFs might find a real home in the riskier corners of the retail sector.
Reader Comments