The old saying “any publicity is good publicity” certainly seems to ring true in the ETF industry. Over the last several months, leveraged ETFs have been the subject of intense scrutiny, first from individual investors and analysts, and more recently from regulatory agencies such as FINRA. Despite allegations that these funds are dishonest products that end up harming average investors who don’t understand their nuances, many leveraged exchange-traded products are among the most popular securities in the world, indicating that while they have their share of detractors, they have found widespread acceptance among certain investor groups.
Most Popular ETFs
While State Street’s SPDR S&P 500 (SPY) and Select Financial Sector Fund (XLF) are the most heavily-traded ETFs, leveraged funds from Direxion and ProShares dominate the top of the list, accounting for half of the top ten ETFs by average daily volume. Because of the complex way these ETFs are structured, they are generally held for only a few hours. Due to the compounding of returns, gains or losses of these funds may become distorted over any period longer than a day. Leveraged ETFs are primarily used by day traders, hedge funds, and other sophisticated investors.
| Issuer | Fund Name | Ticker | Daily Volume* |
|---|---|---|---|
| State Street | SPDR S&P 500 | SPY | 279.3 |
| State Street | SPDR Select Sector Fund – Financial | XLF | 180.1 |
| Direxion | Financial Bull 3x Shares | FAS | 169.9 |
| Direxion | Financial Bear 3x Shares | FAZ | 147.9 |
| PowerShares | QQQ Trust | QQQQ | 140.8 |
| ProShares | Ultra Financials | UYG | 90.3 |
| iShares | MSCI Emerging Markets ETF | EEM | 76.0 |
| iShares | Russell 2000 ETF | IWM | 61.8 |
| ProShares | Ultra S&P 500 | SSO | 57.5 |
| ProShares | UltraShort S&P 500 | SDS | 45.0 |
*Daily volume in millions of shares, as of 7/20/2009
Financials Lead The Way
The financial industry, whose all-consuming greed was regularly cited as the cupprit responsible for the beginning of the mortgage market meltdown that led to the broader global recession. While the approval ratings of Wall Street executives may have plummeted, financial sector ETFs remain incredibly popular, perhaps due to the significant volatilitythat allows for short-term profit taking. In addition to XLF, three leveraged financial ETFs (two from Direxion and one from ProShares) can be found in the top ten.
If Size Matters…
In addition to average daily trading volume, market capitalization is a preferred measure of popularity among ETFs. By this metric, SPY again tops the list with a market capitalization of approximately $50 billion. The top ten ETFs by market capitalization are dominated by the market-leading iShares product line, which claims six of the top spots.
| Issuer | Fund Name | Ticker | Market Cap** |
|---|---|---|---|
| State Street | SPDR S&P 500 | SPY | 50.3 |
| iShares | MSCI EAFE Index Fund | EFA | 30.7 |
| iShares | MSCI Emerging Market Fund | EEM | 30.2 |
| State Street | SPDR Gold Trust | GLD | 17.7 |
| iShares | S&P 500 Index Fund | IVV | 17.7 |
| iShares | Lehman TIPS Bond Fund | TIP | 14.5 |
| PowerShares | QQQ Trust | QQQQ | 14.5 |
| iShares | Russell 2000 ETF | LQD | 12.5 |
| Vanguard | Total Stock Market ETF | VTI | 10.8 |
| iShares | FTSE/Xinhua 25 Index Fund | FXI | 10.7 |
**In billions of U.S. dollars.
Disclosure: Long IVV, EEM.
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