The XLF Complex
The $29.9 billion Financial Select Sector SPDR Fund (XLF) shares an index, the S&P Financial Select Sector Index, with the $1.4 billion Direxion Daily Financial Bull 3X Shares (FAS) and the $173.7 million Direxion Daily Financial Bear 3X Shares (FAZ). XLF is the largest and most actively traded financial services ETF, so it makes sense that there are leveraged and inverse ETFs tied to the same benchmark such that they can be used as precise hedging tools alongside of it.
The SPY Complex
The largest ETF in the world, the $333.7 billion SPDR S&P 500 ETF Trust (SPY), tracks the S&P 500 Index. There are no fewer than nine inverse or leveraged ETFs tied to this index as well. The ProShares complex alone includes the $1.8 billion ProShares Short S&P500 ETF (SH), a -1x fund; the $3.5 billion ProShares Ultra S&P 500 ETF (SSO), a 2x fund; the $1.8 billion ProShares UltraPro S&P500 ETF (UPRO), a 3x fund; the $722.6 million ProShares UltraShort S&P500 ETF (SDS), a -2x fund; and the $659.6 million ProShares UltraPro Short S&P500 ETF (SPXU), a -3x fund. This graph illustrates the pattern of returns for the funds in the complex. Note that UPRO finished the year significantly below SPY, despite the fact that SPY finished the year with positive returns.
The $16.3 billion VanEck Vectors Gold Miners ETF (GDX) tracks the NYSE Arca Gold Miners Index. Direxion offers two ETFs tracking the index: the $1.1 billion Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) and the $104.5 million Direxion Daily Gold Miners Index Bear 2X Shares (DUST). Interestingly, similar to the situation with SPY and UPRO, GDX outperformed its leveraged and inverse counterparts. It further supports the point that daily resets, over time, can produce a return that seems incongruous with the “double exposure” that the ETF provides.
The $149.6 billion Invesco QQQ Trust (QQQ) tracks an index that it shares with five geared ETFs issued by Proshares. The largest is the $9.4 billion ProShares UltraPro QQQ ETF (TQQQ), a 3x fund. It’s followed by the $3.9 billion ProShares Ultra QQQ (QLD), a 2x fund; the $1.5 billion ProShares UltraPro Short QQQ (SQQQ), a -3x fund; the $515.8 million ProShares Short QQQ ETF (PSQ), a -1x fund; and the $243 million ProShares UltraShort QQQ ETF (QID), a -2x fund.