Amid volatility and uncertainty related to U.S.-China trade, global growth slowdown threats and the longest government shutdown, Wall Street made a sharp turnaround in January, posting the best month in many decades. This is especially true as the S&P 500 logged in the best January since 1987, while Dow Jones saw the best start to a year since 1989, climbing 7.9% and 7.2%, respectively. Meanwhile, Nasdaq had its best January since 2001, surging 9.7%.

The historic gain came on the back of signs of progress in U.S.-China trade negotiations, a dovish Fed and strong labor market. Additionally, a string of better-than-expected earnings and the outcome of the Fed’s latest meeting added to the strength. The central bank indicated a pause in the rate hike cycle, after four lift-offs last year. Further, oil price also rebounded strongly after a wild fourth quarter on falling production and OPEC-led fresh crude output cuts. 

All these fundamentals have resulted in huge demand for leveraged ETFs as investors seek to register big gains in a short span. Leveraged funds provide multiple exposure (i.e. 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 a friend.

Below, we have highlighted six ETFs that have piled up exceptional returns in the first month of 2019. These funds will continue to be investors’ darlings provided the sentiments remain the same.

Direxion Daily Brazil Bull 3x Shares (BRZU - Free Report) – Up 62.8%

The ETF creates a three times long position in the MSCI Brazil 25/50 Index. It has amassed about $402.6 million in its asset base while charging 95 bps in fees per year from investors. Volume is solid as it exchanges around 2.8 million shares a day on average.

Direxion Daily Natural Gas Related Bull 3x Shares (GASL - Free Report) – Up 51.5%

This product seeks to deliver three times the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund has amassed $36.9 million in AUM and trades in a good average daily volume of 326,000 shares. Expense ratio comes in at 0.95%.

Direxion Daily S&P Biotech Bull 3x Shares (LABU - Free Report) – Up 50.9%

This fund creates a 3x leveraged long position in the S&P Biotechnology Select Industry Index. It charges an annual fee of 95 bps and trades in a heavy average daily volume of about 3 million shares. The fund has AUM of $610.6 million.

Direxion Daily Latin America 3x Bull Shares (LBJ - Free Report) – Up 47.3%

This product tracks the S&P Latin America 40 Index, providing three times exposure. It has gathered $14.1 million in its asset base while charging 95 bps in annual fees. Volume is lower, trading at nearly 25,000 shares.

Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH - Free Report) – Up 47.3%

This fund offers three times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $262.8 million in its asset base and the average daily volume is solid at around 2.9 million shares. Expense ratio comes in at 0.95%.

Direxion Daily Homebuilders & Supplies Bull 3X Shares (NAIL  - Free Report) - Up 47%

NAIL provides leveraged exposure to homebuilders and creates a three times long position in the Dow Jones U.S. Select Home Construction Index. It charges an annual fee of 95 bps and trades in lower average daily volume of about 56,000 shares. The fund has accumulated $29.5 million in its asset base.

Bottom Line

While this strategy is highly beneficial for short-term traders, it could lead to 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 the shorter period (such as weeks or months) due to their compounding effect.

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