5 Best Leveraged ETFs of September

September, known for being a weak month for stock markets, was off to a terrible start but broke its past trend toward the end. All three major indices posted monthly gains with the Dow Jones and the S&P 500 hitting new records to close the month. Notably, the S&P 500 not only logged in the first positive September since 2019 but also registered its best September since 2013, rising 5.5%. The Dow Jones and the Nasdaq Composite Index gained 8.2% and 2.6%, respectively.

While recession fears and geopolitical tension resulted in risk-off trading in the initial weeks of the month, rate-cut optimism and investors’ confidence that the economy is headed for a soft landing buoyed the stock market in the final weeks. This resulted in a huge demand for leveraged ETFs as investors looked to register big gains in a short span. 

We have highlighted a bunch of the best-performing leveraged equity ETFs that led the space last month. These include AdvisorShares MSOS 2x Daily ETF MSOX, MicroSectors Travel 3x Leveraged ETN FLYU, Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares EVAV, Direxion Daily Consumer Discretionary Bull 3X Shares WANT and Direxion Daily Utilities Bull 3X Shares UTSL. These funds seek to register big gains in a short span and will continue their strong trend, at least in the near term, provided the sentiments remain bullish.

The Federal Reserve kicked off the easing monetary era by slashing key interest rates by 50 bps to 4.75%-5% after holding it at a 23-year high for 14 consecutive months since July 2023. This marked the first rate cut since 2020 to address slowing economic growth. The central bank projects two more rate cuts of another 50 bps in its final two meetings this year, due in November and December. It indicates another 100-bps rate cut next year and a 50-bps cut in 2026, which means four rate cuts in 2025 and two in 2026 (read: 5 Sector ETFs Scaling New Highs on Fed Rate Cuts). 

Lower interest rates lead to reduced borrowing costs, which help businesses expand their operations easily, resulting in increased profitability. This, in turn, stimulates economic growth and provides a boost to the stock market.

Leveraged ETFs

Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend.

Since most of these ETFs seek to attain their goals on a daily basis, their performances could vary significantly from the performance of their underlying index or benchmark over a longer period compared with a shorter period (such as weeks, months or years) due to their compounding effect (see: all Leveraged Equity ETFs here). 

Investors should also note that leveraged ETFs involve a great deal of risk than traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.

ETFs in Focus

AdvisorShares MSOS 2x Daily ETF (MSOX) – Up 29.3%

AdvisorShares MSOS 2x Daily ETF is designed for sophisticated investors looking to gain magnified exposure to the U.S. cannabis sector. As an actively managed ETF, MSOX seeks to generate two times cannabis exposure by investing in swap agreements on the AdvisorShares Pure US Cannabis ETF MSOS. AdvisorShares MSOS 2x Daily ETF has accumulated $58.6 million in its asset base and trades in a volume of 2 million shares per day on average. It charges 1.13% in annual fees (read: 5 ETFs That Led the Rebound on Monday).

MicroSectors Travel 3x Leveraged ETN (FLYU) – Up 28.8%

MicroSectors Travel 3x Leveraged ETN offers three times exposure to the performance of the MerQube MicroSectors U.S. Travel Index. It has accumulated $6.7 million in its asset base and charges 95 bps in annual fees. MicroSectors Travel 3x Leveraged ETN trades in a paltry volume of 4,000 shares per day, on average. 

Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares (EVAV) - Up 27.7%

Direxion Daily Electric and Autonomous Vehicles Bull 2X Shares seeks to track two times the performance of the Indxx US Electric and Autonomous Vehicles Index. It has accumulated $5 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 17,000 shares.

Direxion Daily Consumer Discretionary Bull 3X Shares (WANT) – Up 26.9%

Direxion Daily Consumer Discretionary Bull 3X Shares offers leveraged exposure to the consumer discretionary sector. It provides three times exposure to the Consumer Discretionary Select Sector Index, charging 95 bps in annual fees. Direxion Daily Consumer Discretionary Bull 3X Shares has AUM of $28.4 million and an average daily volume of 29,000 shares.

Direxion Daily Utilities Bull 3X Shares (UTSL) – Up 21.8%

With AUM of $56.9 million, Direxion Daily Utilities Bull 3X Shares offers three times exposure to the performance of the Utilities Select Sector Index. It charges investors an annual fee of 95 bps and trades in a lower average daily volume of 183,000 shares.

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