5 Best-Performing Leveraged ETFs Of Fourth Quarter

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After a brutal start to the final quarter of 2020, Wall Street staged a solid comeback with the major indices soaring to historic highs primarily on vaccine development. 

Coronavirus immunizations have started in America with Pfizer (PFE - Free Report) shots and more vaccines are on the way. Moderna (MRNA - Free Report), last week, received the FDA authorization for emergency use against COVID-19 in individuals 18 years of age or older. A vaccine will lead to a swift recovery in the economy, which was battered by the pandemic.

Additionally, the potential of a divided Congress with president-elect Biden is driving the stocks higher. The divided government is favorable for the economy, as there will be lesser chances of major tax increases and tighter regulations. Further, a new coronavirus relief package worth $900 billion approved by the Congress has added to the strength.

The rally came despite the soaring number of coronavirus cases. Per New York Times report, daily average new COVID-19 cases surged to 216,163 over the past week, 7% higher than the average recorded two-weeks ago.

The strong optimism over the economic recovery has resulted in huge demand for the leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (2X or 3X) to the daily performance of the underlying index by employing various investment strategies such as swaps, futures contracts, and other derivative instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time, provided the trend remains positive.

Below we highlight some leveraged ETFs that gained more than 85% over the past three months. These funds will continue to be investors’ darlings provided the sentiments remain bullish.

Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 107.5%

This fund creates a three times leveraged long position on the S&P Biotechnology Select Industry Index. It charges an annual fee of 0.95% and trades in a heavy average daily volume of about 1.2 million shares. The fund has AUM of $395.8 million.

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