Leveraged ETFs are powerful and complex trading instruments that allow traders to magnify the return on investment. While higher returns are an attractive proposition, investors need to realize that losses are magnified too. Thus, these ETFs need to be handled with care.
Leveraged ETFs deliver the desired returns over prespecified periods only (usually one day). A leveraged ETF that offers 2x exposure to the S&P 500 only attempts to do so over one-day holding periods. Investors looking to hold these ETFs for significantly longer time periods can often find themselves losing money even if the underlying benchmark behaved as expected.
With 129 ETFs traded on the U.S. markets, Leveraged ETFs have total assets under management of $27.70B. The average expense ratio is 1.03%. Leveraged ETFs can be found in the following asset classes:
- Asset Allocation
- Fixed Income
The largest Leveraged ETF is the Direxion Daily Semiconductor Bull 3X Shares SOXL with $4.92B in assets. In the last trailing year, the best-performing Leveraged ETF was QLD at 214.06%. The most recent ETF launched in the Leveraged space was the AdvisorShares Poseidon Dynamic Cannabis ETF PSDN on 11/16/21.