Top 5 Leveraged ETFs to Watch in Q4 2024

The final quarter of 2024 has been quite turbulent for the U.S. stock market. Following a lackluster October, November emerged as the best month of the year, fueled by a rally after President-elect Donald Trump’s victory in the elections. This upward trend carried on into early December, especially with the renewed interest in tech stocks.

During this period, the Dow Jones Industrial Average reached over 45,000 points for the first time. Additionally, the S&P 500 neared the 6,100 mark, while the tech-focused index exceeded 20,000. However, this fantastic rally hit a snag mid-month, largely due to the Federal Reserve adopting a less accommodating monetary policy stance.

This backdrop sparked significant interest in leveraged ETFs, as investors aimed to achieve considerable gains in a short time frame. The following leveraged ETFs emerged as the standout performers in the fourth quarter:

CoinShares Valkyrie Bitcoin Futures Leveraged Strategy ETF (BTFX - Free Report) , Direxion Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) , Direxion Daily Consumer Discretionary Bull 3X Shares (WANT - Free Report), Direxion Daily Cloud Computing Bull 2X Shares (CLDL - Free Report), and BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report).

These funds are designed to capture significant growth over short periods, fueled by investor optimism. Leveraged ETFs leverage (2X or 3X) the daily performance of their underlying indexes. This is achieved through various trading strategies that may involve swaps, futures contracts, and other derivative tools.

Market sentiment on Wall Street remains positive about the upcoming administration's economic plans. Although Trump’s policies, which include policies aimed at limiting illegal immigration, raising tariffs, cutting taxes, and reducing regulations, may contribute to inflation and restrict the Fed's capacity to lower interest rates, they are expected to have a positive impact on economic growth. Moreover, advancements in artificial intelligence are likely to sustain a market rally.

Despite the Fed's cautious outlook on future rate adjustments and a projection of fewer rate cuts than previously anticipated, it has lowered interest rates three times over the past three months, reducing the benchmark rate to 4.25-4.50%. Lower interest rates translate to cheaper borrowing costs, making it easier for businesses to grow operations and enhance profitability.

As of December, the U.S. economy has shown signs of growth, characterized by rising consumer confidence and increased spending capacity. Economic activity hit a peak not seen in nearly three years. The S&P Global’s flash U.S. composite PMI indicator, which accounts for services and manufacturing sector activity, stood at 56.6 in December, climbing from 54.9 in August. Retail sales also exceeded expectations in November, showcasing resilience in consumer spending and strong economic momentum.

Consumer sentiment in the U.S. improved for the fifth consecutive month in December. The sentiment index from the University of Michigan rose to 74, up from 71.8 the previous month. Conversely, consumer confidence, as per the Conference Board Consumer Confidence Index, witnessed a significant decline in December—the steepest monthly drop since November 2020, amidst growing worries about future business conditions.

On another note, Bitcoin, the largest cryptocurrency, soared to an all-time high of $108,000 in early December, driven by increased interest from investors and institutions, rate cuts from the Fed, and Trump’s backing for cryptocurrency. Trump has pledged to establish the U.S. as the "crypto capital of the world." However, Bitcoin experienced a decline of about 13% from its peak on December 17.

Highlighted ETFs

CoinShares Valkyrie Bitcoin Futures Leveraged Strategy ETF (BTFX - Free Report) – Up 122.5%

This ETF targets leveraged exposure that aims to achieve twice (2X or 200%) the daily performance of the S&P CME Bitcoin Futures Index Excess Return. It serves as a powerful instrument for investors looking to benefit from daily price movements in Bitcoin futures. The CoinShares Valkyrie ETF sees a decent average trading volume of 51,000 shares and has an accumulated asset base of $35.5 million, with annual fees of 1.85%.

Direxion Daily Dow Jones Internet Bull 3X Shares (WEBL - Free Report) – Up 59%

This ETF provides threefold (3X or 300%) leveraged exposure to the Internet sector, tracking the Dow Jones Internet Composite Index. It has attracted an asset base of $174.3 million and charges 0.95% in annual fees, with an average daily volume of 348,000 shares.

Direxion Daily Consumer Discretionary Bull 3X Shares (WANT - Free Report) – Up 49.3%

Offering three times exposure to the Consumer Discretionary Select Sector Index, this ETF charges 0.95% in annual fees. It has an asset base of $34.5 million and sees an average daily volume of 39,000 shares traded.

Direxion Daily Cloud Computing Bull 2X Shares (CLDL - Free Report) – Up 48.8%

This ETF provides twice leveraged exposure to the Indxx USA Cloud Computing Index and has an asset base of $8.3 million, charging 0.95% in annual fees while trading an average of 27,000 shares per day.

BMO REX MicroSectors FANG+ Index 3X Leveraged ETN (FNGU - Free Report) – Up 47.6%

The BMO REX MicroSectors fund offers three times leveraged exposure to the NYSE FANG Index, which comprises ten leading tech and media stocks. This ETN charges 0.95% in annual fees and trades with an average volume of approximately 721,000 shares, holding an asset base of $7.7 billion.

Conclusion

Investors should approach these products with caution, as they are highly volatile and geared towards short-term trading. The daily rebalancing, coupled with leverage, can lead to significant deviations from expected long-term performance outcomes.

For ETF investors who are optimistic about these sectors in the near term, the above-mentioned funds present compelling options. Those with a high risk tolerance and a belief in ongoing trends may find opportunities in this segment of the investment landscape.

ETFs, Investing, Markets