While it may seem like the pandemic tamped down ETF risk through leveraged and inverse funds, the opposite has actually occurred. As the markets continue to flux, investors can utilize trading options for the S&P 500 from Direxion Investments that go in either direction.
Right now, there’s a lot of positivity permeating the markets around a pending COVID-19 vaccine. So if you err on the side of bullishness, there’s the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL ).
SPXL daily investment results equating to 300% of the daily performance of the S&P 500® Index. The fund, under normal circumstances, invests at least 80% of its net assets (plus borrowing for investment purposes) in financial instruments, such as swap agreements, and securities of the index, ETFs) that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.
The coronavirus and the lack of tangible vaccine as of yet could continue to put a bearish spin on major indexes like the S&P 500. As such, traders can look to the Direxion Daily S&P 500 Bear 3X ETF (SPXS ) for a leveraged inverse play.
SPXS seeks daily investment results equal to 300 percent of the inverse of the daily performance of the S&P 500 Index. The fund, under normal circumstances, invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse (opposite) or short leveraged exposure to the index equal to at least 80 percent of the fund’s net assets (plus borrowing for investment purposes).
Turn Up The Risk
When it came to taking on risk, a lot of investors weren’t averse, even amid the pandemic sell-offs. With leveraged and inverse products, the volatility gave traders options to play both sides of the coin.
“Investors’ penchant for risk-taking has rejuvenated a volatile and sometimes dangerous group of exchange-traded funds,” a Wall Street Journal report noted. “Leveraged and inverse ETFs have raked in $16.3 billion through the first 10 months of the year, on pace to top 2008’s record haul of $16.7 billion, according to Morningstar. The funds use leverage to double or triple daily returns and sometimes offer investors a chance to profit off the inverse, or opposite, of an index’s move.”
Of course, these products aren’t for the weak at heart.
“These products are ripe for investor attention,” said Todd Rosenbluth, head of ETF and mutual-fund research at CFRA. “People see the strong performance and think, ‘I want that too.’ The market environment is conducive to leverage, but investors should be very careful.”
For more news and information, visit the Leveraged & Inverse Channel.