5 Leveraged/Inverse ETFs Soaring In December

Heightened volatility and uncertainty have raised the appeal for leveraged and inverse leveraged ETFs. While U.S.-China trade tensions, flattening the yield curve, political instability in Europe and global growth worries have recently resulted in market gyrations, bouts of upbeat economic data as well as holiday optimism are acting as major catalysts to the stocks.

Against such a backdrop, investors are rushing to the products in this space 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 are seeing huge gains this month though these involve a great deal of risk when compared to traditional products. This trend might continue at least for the near term if the sentiments remain the same.

VelocityShares Daily 2x VIX Short Term ETN (TVIX - Free Report) – Up 31.6%

As volatility has been at the forefront this month, leveraged volatility products are outperforming. This note offers two times exposure to the S&P 500 VIX Short-Term Futures Index. TVIX is popular with average daily volume of around 12 million shares and AUM of about $549.6 million. Expense ratio came in much higher at 1.65%. However, investors should note that volatility products have been terrible performers over the medium and long-term due to a contangoed market and a steep roll cost.

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