Most Popular ETFs: Leveraged, Financial ETFs Among Winners

by on July 21, 2009 | ETFs Mentioned:

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.