Top Performing Leveraged ETFs – GASX, YINN, RUSS
It’s been an eventful month for the world and the markets…
Unfortunately, most of it has been bad news. The conflicts in Ukraine, Gaza, Syria and other areas of the Middle East have taken center stage in the geopolitical arena.
These are horrible humanitarian disasters that create instability and uncertainty.
What’s more, there are renewed fears about the global banking system and sovereign debt defaults.
The Portuguese bank, Banco Espirito Santo, reported a stunning $4.8 billion loss in the first half of 2014. The bank has been ordered to raise capital to avoid collapsing.
And Argentina has failed to pay interest on its bonds. It’s the first country to default on their sovereign debt since Greece restructured its debt in 2012.
Not surprisingly, the combined weight of these events has triggered the first monthly loss for the S&P 500 since January.
Here’s the thing… there were still ways to make money using ETFs.
Don’t forget, there are inverse ETFs that move in the opposite direction of the underlying index. In other words, they go up when the index goes down.
Let’s take a look at three ETFs that made investors the most money during the turbulent month of July…
Direxion Daily Natural Gas Related Bear 3x Shares (GASX)
GASX was the top performing ETF in July. It’s up a whopping 40.6% over the last month. However, it’s still 57% off of its 52-week high.
Needless to say, this inverse leveraged ETF has made some big moves higher and lower over the last year. But that’s not surprising given that it’s designed to move three times as much and in the opposite direction as the index of natural gas stocks that it tracks.
Companies that make most of their money by exploring for and producing natural gas often see their stock price move with the price of natural gas.
Lately, the price of natural gas has fallen from a high of over $6.00/mmbtu to around $4.00/mmbtu. That’s the lowest level in months. And it seems to be destined to test the year’s low around $3.96.
If the price of natural gas continues to fall, then GASX should continue to rack up gains.
Direxion Daily China Bull 3x Shares (YINN)
YINN has been one of the top performing ETFs over the last month. It’s up 26.7% and just below the 52-week high.
This is another leveraged ETF from Direxion. It’s designed to move 3 times as much as the Chinese stocks in the Bank of New York Mellon China Select ADR Index.
Chinese stocks have been in a bear market over the last five years.
Their economy has been slowing and many US listed Chinese companies have been found to be complete frauds. What’s more, there are concerns about a bubble in Chinese real estate and the nation’s debt structure.
Needless to say, that’s not exactly a bullish backdrop for investors.
Over the last month, the tide has begun to turn for China. They recently reported their third-largest quarterly trade surplus and manufacturing data has been the best since 2013.
What’s more, Chinese stocks are ultra-cheap compared to US stocks. The Shanghai Composite is trading at around 8 times projected earnings while the S&P 500 is trading at around 18 times projected earnings.
Clearly, YINN is a compelling investment given these facts. And it should continue to rack up gains if the Chinese economy continues to rebound.
Direxion Daily Russia Bear 3x Shares (RUSS)
RUSS has racked up a gain of 23.3% over the last month. That’s one of the biggest gains for an ETF over that time.
As the name suggests, this inverse leveraged ETF from Direxion is designed to move three times as much and in the opposite direction as an index of Russian stocks.
This ETF has clearly benefited from the fighting in Ukraine between Russian backed militants and the Ukrainian military.
The US and its allies are stepping up economic sanctions against Russia for its part in the conflict. That’s bad news for the Russian economy.
Until a diplomatic solution is reached, the sanctions against Russia will choke off economic growth and likely lead to big losses for publicly traded companies there.
At this point, there’s no end in sight to this conflict. So RUSS should continue to see gains going forward.
Here’s the upshot…
Over the last month, we’ve seen geopolitics, commodity prices, and renewed optimism about China contribute to big gains in specialized ETFs like GASX, YINN, and RUSS.
But remember to use caution when using leveraged ETFs. The leverage they use is designed to deliver the promised results for a single day. Over the long run, the performance doesn’t always live up to expectations.
Good Investing,
Corey Williams
Category: ETFs
