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Wall Street ended the first month of 2023 on a strong note, with the Dow Jones and the S&P 500 posting their biggest January gains since 2019. The tech-heavy Nasdaq Composite Index outperformed with 10.5% gains, followed by the small-cap Russell 2000 Index, which gained 9.8%. Easing inflation and hopes of the Fed’s slower rate hike path fueled the rally in stocks.

This has resulted in huge demand for leveraged ETFs as investors sought to register big gains in a short span. We highlight a bunch of the best-performing leveraged equity ETFs from different corners of the market that gained more than 50% in January. These include MicroSectors Travel 3x Leveraged ETN (FLYU - Free Report), BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report), Daily S&P 500 High Beta Bull 3X Shares (HIBL - Free Report), Direxion Daily Retail Bull 3X Shares (RETL - Free Report) and Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (EVAV - Free Report). These funds will continue to be investors’ darlings, at least in the near term, provided the sentiments remain bullish.

Inflation is easing, raising the prospects that the Fed could soon signal an end to its rate-hiking cycle. U.S. consumer prices unexpectedly fell for the first time in more than two-and-a-half years in December. A moderation in wage increases and a decline in U.S. services activity in December signal a slowdown in the U.S. economy and buoyed hopes of a less hawkish stance from the Fed. The latest job report showed that the United States added 223,000 jobs in December and the unemployment rate fell to 3.5%, matching a 50-decade low. However, wage growth lost momentum. All these factors have boosted investors’ risk appetite.

The U.S. economy expanded 2.1% annually in 2022 but is down from an annual growth of 5.9% recorded in 2021— the fastest rate since 1984. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 2.1% in the fourth quarter but slower than a 2.3% increase in the third quarter. The growth came on the back of strong labor market resilience as well as excess savings accumulated during the COVID-19 pandemic. Given the resilient economy, the United States might avoid recession if the activity continues to grow this year.

Further, decent earnings from corporate America are also contributing to the market’s good mood.

We have profiled the ETFs in detail below:

MicroSectors Travel 3x Leveraged ETN (FLYU) – Up 86.1%

MicroSectors Travel 3x Leveraged ETN offers three times (3X or 300%) exposure to the performance of the MerQube MicroSectors U.S. Travel Index. It has accumulated $6.1 million in its asset base since its debut in late June and charges 95 bps in annual fees.  

MicroSectors Travel 3x Leveraged ETN trades in a paltry volume of 2,000 shares per day on average.

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU) – Up 60.5%

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN seeks to offer three times leveraged exposure to the NYSE FANG Index, charging 95 bps in annual fees.

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN has accumulated $948.6 million in its asset base and trades in an average daily volume of 2.4 million shares.

Daily S&P 500 High Beta Bull 3X Shares (HIBL) – Up 52.4%

Daily S&P 500 High Beta Bull 3X Shares offers three times exposure to the performance of the S&P 500 High Beta Index. The index selects 100 securities to include in the index from the S&P 500 Index that have the highest sensitivity to market movements, or “beta,” over the past 12 months.

Daily S&P 500 High Beta Bull 3X Shares has gathered $81.7 million in its asset base and trades in an average daily volume of 204,000 shares. The fund charges 95 bps in fees per year from its investors.

Direxion Daily Retail Bull 3X Shares (RETL) – Up 52.4%

Direxion Daily Retail Bull 3X Shares offers three times leveraged exposure to the S&P Retail Select Industry Index.

Direxion Daily Retail Bull 3X Shares has amassed about $57.1 million in its asset base, while charging 95 bps in fees per year. It exchanges around 413,000 shares a day on average.

Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (EVAV) - Up 51%

Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares seeks to track the two times performance of the Indxx US Electric and Autonomous Vehicles Index. It has accumulated $3.3 million in its asset base.

Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares charges 95 bps in annual fees and trades in an average daily volume of 823.000 shares.

Bottom Line

As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures.

Still, for ETF investors bullish on U.S. stocks for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is a friend in this corner of the investing world.

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