The last thing on the minds of most investors these days is the desire to use leverage to improve investment returns. And that’s good news. Therefore, to maximize returns and increase exposure to various market sectors, investors may consider using exchange-traded funds (ETFS) designed to return three times the performance of the underlying investments.
Investopedia Broker Guides – Improve Your Trading With Tools From Today’s Top Online Brokers. Triple the Rise / Downside of Finance The Direxion Bull Daily Financial 3x Stock ETF ( ARK : FAS ) is designed to return three times the performance of the Russell 1000 Financial Services Index (“Financial Index”) on a day-to-day basis. The underlying financial services index is a capital-weighted index of financial service providers that ranges from large-cap banks, such as wells fargo (nyse: wfc) and goldman sachs (nyse: gs), to insurance providers, such as aflac ( nyse: afl) and allstate
(NYSE: all). the fas etf had posted a 59% return so far this year, while the russell 1000 financial services index has grown by around 19% over the same period.
How does it work?
Fas etf will invest a minimum of 80% of its net assets in long positions of the individual stocks that make up the financial index. The fund also invests in financial instruments that provide leveraged and unlevered exposure to the financial index, thereby creating the ability to triple the returns of the underlying index. The balance of net assets is held in money market instruments. however, note that the etf’s performance to date is not equal to 3 times the index’s performance. as the prospectus points out: “
See: dissecting leveraged etf returns
Can I play low?
The other side of the coin offers investors the opportunity to profit from the fall in finances in the daily financial direction of the financial bear 3x stocks etf (ark: face). the faz fund is designed to return the inverse of the financial index by creating short positions rather than holding long positions in equities, like its sister friend of the bull, the fas etf. the face etf has fallen approximately -43% so far this year.
A further 3x
etfs options offering three times higher (bullish) and three times lower (bearish) are also available as sector specific funds. These include: the direction daily technology bull 3x shares (ark: tyh), the direction daily technology has 3x shares (ark: typ), the direction daily energy bull 3x shares (ark: erx) and the direction daily energy bear 3x shares ( ark: ery).
See: reverse etfs can lift a falling portfolio
Final thoughts
given the volatility in the market, only investors who have time to pay attention to these investment vehicles should consider allocating a small portion of their investments to the three times higher returns. the upside potential seems explosive if you are on the right side of the market movement. However, beware of compounding negative returns on the other side.
