5 Leveraged/Inverse ETFs That Gained Double Digits In August

The month of August was highly volatile for the U.S. stock market marked by an escalation in U.S.-China trade relations, a slowing global economy and a recession signal being flashed by the inversion of the yield curve. Weak global economic data, low inflation and political unrest in Hong Kong added to the chaos.

However, hopes of monetary easing globally and positive trade developments continued to provide some support in between.

Notably, the Dow dropped 1.7%, the S&P 500 shed 1.8% and the Nasdaq lost 2.6% last month. The Russell 2000 Index took the heaviest losses for the month, falling 5.1%. In fact, the S&P 500 posted 11 moves of more than 1% in 22 trading sessions for August. Those moves included three declines of at least 2.6% as well as the index’s worst day of the year on Aug 5, per CNBC.

Against this backdrop, investors are rushing to leveraged or inverse leveraged ETFs to increase returns on quick market turns in a short span. These products either create a leveraged long/short position, an inverse long/short position or a leveraged inverse long/short position in the underlying index through the use of swaps, options, future contracts, and other financial instruments. Due to their compounding effect, investors can enjoy higher returns in a very short period of time provided the trend remains a friend.

However, these funds run the risk of huge losses compared to traditional funds in fluctuating or seesawing markets. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as weeks or months).

Still, we have highlighted five leveraged/inverse products that have gained in double digits in August though these involve a great deal of risk when compared to traditional products. This trend might continue at least in the near term provided the sentiments remain the same.

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