Best Leveraged ETFs of the Second Quarter of 2025

Wall Street logged in strong gains in the second quarter of 2025, reflecting a dramatic rebound from the lows hit in early April. The S&P 500 and Nasdaq Composite posted back-to-back record closing highs to end the quarter, rising 10% and 18%, respectively. The S&P 500 registered its strongest quarterly performance since late 2023, while the Dow Jones Industrial Average notched its best quarterly gain in more than a year. The blue-chip index gained 5%.

We have highlighted the best-performing leveraged equity ETFs that led the market in the second quarter. Direxion Daily Uranium Industry Bull 2X Shares URAA jumped 140%, followed by gains of 87% for MicroSectors FANG+ 3 Leveraged ETNs FNGU, 84% for ProShares Ultra Semiconductors USD, 74% for Direxion Daily Crypto Industry Bull 2X Shares LMBO and 69% for Direxion Daily Aerospace & Defense Bull 3X Shares DFEN. 

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. Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as swaps, futures contracts and other derivative instruments, to accomplish their objectives.

Here's a closer look at the key drivers that fueled the rally:

AI-Led Tech Surge

Artificial intelligence remained the dominant theme throughout the second quarter. Heavyweights like NVIDIA (NVDA), Microsoft (MSFT) and Alphabet (AAPL) continued to post strong earnings, driven by soaring demand for AI chips, cloud computing and enterprise integration of generative AI tools. The broader tech sector, especially semiconductors, surged as optimism around productivity gains and capital investment in AI infrastructure intensified (read: 5 Stocks Driving Nasdaq 100 ETF Higher in 2025).

Easing Trade Tensions

After months of market unease triggered by escalating tariffs and global trade frictions, signs of de-escalation provided a major boost. President Trump's temporary suspension of proposed tariffs in late April alleviated investor fears over supply chain disruptions and import cost inflation. This shift not only stabilized multinational stocks but also reignited confidence in industrial and consumer sectors.

Benign Economic Data

Economic indicators released throughout the quarter painted a picture of steady, albeit moderated, growth. Inflation showed signs of cooling, with core PCE and CPI readings edging lower. Consumer spending remained resilient, supported by a strong labor market and rising real wages. Meanwhile, GDP growth for Q1 was revised upward, further supporting the soft-landing narrative.

Federal Reserve’s Dovish Tilt

Federal Reserve Chair Jerome Powell signaled a more accommodative stance during his June meeting, hinting that interest rate cuts could arrive later in the year. The central bank’s shift from a hawkish to dovish tone reassured investors that monetary policy would support the recovery.

Resumption of LNG Exports and Energy Stability

A rebound in U.S. liquefied natural gas (LNG) exports following spring maintenance at key terminals helped stabilize energy markets. This development, combined with stable oil prices and stronger demand from Europe and Asia, benefited energy stocks and reduced fears of an energy shock that could put pressure on global growth (read: Here's Why Energy ETFs Outperformed Last Week: Will the Rally Last?).

Investor Sentiment and Momentum Buying

After a rocky Q1, investor sentiment turned decisively positive in May and June. Record inflows into ETFs and mutual funds, particularly in large-cap and tech-focused instruments, helped sustain the rally. Momentum buying, short covering, and the fear of missing out among institutional investors further accelerated the upward movement in stock prices.

Bottom Line

As a caveat, investors should note that the leveraged 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 (see: all the Leveraged Equity ETFs here).

Yet, for ETF investors who are bullish on these sectors in the near term, any of the above-mentioned products can be an interesting choice. 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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This article originally published on Zacks Investment Research (zacks.com).

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