Riding bull markets or buying the dip: How to choose your leverage ETFs
Leveraged ETFs amplify index movements, attracting investors aiming to profit in bull markets or buy dips. For instance, the $ProShares UltraPro QQQ ETF (TQQQ.US)$ surged 198% in 2023, far outpacing Nasdaq's 43% gain, with nearly $1 trillion in annual trading volume.
New to leveraged ETFs or looking for the best picks? This article has you covered!
Leveraged ETF Overview
In our course "What are the different types of ETFs?", we mentioned leveraged ETFs come in 1.5x, 2x, and 3x multiples.
They can amplify gains if used wisely but can also magnify losses if not. How do they stack up against other leveraged investment strategies?
Advantages:
- No Borrowing: There is no need to borrow money, so there are no interest costs.
- No Margin Calls: No risk of margin calls.
- Easy to Trade: Buy through a regular brokerage account managed by professionals.
Disadvantages:
- Tracking Error: Extra losses in volatile markets, leading to tracking errors.
- Higher Fees: Higher costs compared to regular ETFs.
To help users invest in ETFs, moomoo offers an ETF Screener tool. (Learn how to use it in our tutorial: "How to Use ETF Screener on moomoo") Below we give some examples of how to pick leveraged ETFs with this ETF screener.
Finding polupar targets
For example, to find and compare popular leveraged ETFs on moomoo, we can choose the "Best Leveraged ETFs." in the ETF Screeners.
Sort by volume: The top entries are the most popular leveraged ETFs, showing their leverage multiples and performance.
For example, $GraniteShares 2x Long NVDA Daily ETF (NVDL.US)$ , with 2x leverage, achieved a 323.53% return over the past year, outperforming other leveraged ETFs.
Key factors when choosing leveraged ETFs
When selecting leveraged ETFs, consider alignment with your investment goals and risk tolerance, not just popularity. Key factors include:
I. Theme
Leveraged ETFs track a variety of benchmarks. Investors should choose based on their investment strategy. Common themes include:
For every sector opportunity or investment theme, investors have a leveraged ETF ready to amplify their plays. For example:
If you want to go long the bond market after the Fed cuts interest rates, $Direxion Daily 20+ Year Treasury Bull 3X Shares ETF (TMF.US)$ may be a good choice because bond ETFs without leverages usually have lower volatility.
If the market is in a panic, the VIX index usually rises quickly, which provides $ProShares Ultra VIX Short-Term Futures ETF (UVXY.US)$ an opportunity for short-term profit or risk hedging.
If you don't have a particular sector or theme in mind, it's a good idea to go straight to an index leveraged ETF. For example:
$ProShares UltraPro QQQ ETF (TQQQ.US)$ tracks NASDAQ;
$Direxion Daily S&P 500 Bull 3X Shares ETF (SPXL.US)$ tracks S&500;
$Direxion Daily Small Cap Bull 3X ETF (TNA.US)$ tracks Russell 2000.
When using the ETF screener, you can filter by "Theme" and "Benchmark."
II. Leverage multiple
Higher leverage means higher volatility. For example, $Direxion Daily Semiconductor Bull 3x Shares ETF (SOXL.US)$ with 3x leverage surged 120% in early 2024 but then dropped from $70 to $23.5 after July.
Use the ETF screener to filter ETFs by your desired leverage multiple.
III. Expense ratios
Leveraged ETFs typically have higher expense ratios. Use the ETF screener to set your acceptable "Expense Ratio" range to filter out unsuitable options.
Summary
- ETF screeners help you quickly find your leveraged ETFs.
- When selecting leveraged ETFs, consider leverage ratio, theme, and expense ratio along with popularity.
- Leveraged ETFs carry higher risk and are suitable only for investors with high-risk tolerance.
This presentation is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this content is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. Read more
