These Leveraged ETFs Are Worth The Risk Now
No, leveraged ETFs aren't perfect. Far from it as a matter of fact. However, this often derided subsector of the ETF universe is known for something else besides controversy: Big gains in short periods of time.
Obviously, that also means the potential for large losses exists. And it pays to remember that ProShares and Direxion, the two largest U.S. issuers of leveraged and inverse ETFs, make no bones about it on their Web sites. These ETFs are daily instruments. Translation: Don't play Warren Buffett with any of the ETFs mentioned here.
With the disclaimers and warings out of the way, active traders may want to avail themselves of a few of the leveraged funds highlighted here. Just be sure to take your gains of 5%-10% in a day or a few days and be on your merry way.
ProShares UltraShort Yen (NYSE: YCS) Designed to be the double-leveraged inverse answer to the CurrencyShares Japanese Yen Trust (NYSE: FXY), the ProShares UltraShort Yen might be one of the riskiest leveraged ETFs anyone can get involved with. Despite a massive debt load and numerous economic and political problems in Japan, the yen's rise against the dollar (something Japanese exporters can ill afford) has been nearly undaunted for a while now.
Actually, make that 40 years, as the Wall Street Journal noted last week. No one knows exactly when, or if, the yen will decline against the dollar, but this is a pivotal forex pair to keep an eye on. YCS is useful for a couple of days when the Bank of Japan announces one of its typically ineffective currency interventions.
Direxion Daily Gold Miners Bull 3X Shares (NYSE: NUGT) Gold miners have been on fire this year. Most traders know that, but that hasn't resulted in a lot of press for NUGT, which is up 30% year-to-date. If miners finally start tracking or outperforming bullion, NUGT is in for a big year. If miners disappoint, you'll want to become familiar with the Direxion Daily Gold Miners Bear 3X Shares (NYSE: DUST).
ProShares UltraShort Utilities (NYSE: SDP) Last year was very kind to utilities stocks and the Utilties Select Sector SPDR (NYSE: XLU). A sequel hasn't materialized yet this year and profit-taking in the utilities space has the ProShares UltraShort Utilities up over 8% year-to-date. Even if the broader market rallies, SDP is worth an occasional trade if that rally comes on the back of high-beta names.
ProShares UltraShort Brazil (NYSE: BZQ) It has been a dandy start to the year for Brazilian equities and the corresponding ETFs. It would not be a surprise to see that trend continue, but nothing moves up in a straight line, certainly not a volatile emerging markets ETF like the iShares MSCI Brazil Index Fund (NYSE: EWZ).
A couple of down days for the Bovespa usually translates to some rapid gains for BZQ making this ETF an ideal short-term hedge on long-term positions in EWZ or related Brazil ETFs.
Direxion Daily India Bull 3X Shares (NYSE: INDL) Even with today's decline of more than 5%, the Direxion Daily India Bull 3X Shares is still up a jaw-dropping 59% since the start of 2012. Said differently, INDL might have to disappear in order for another fund to wrest the title of best India ETF of 2012. But as we just said, nothing moves up in a straight line and since stocks fall faster than they rise, those that become acquainted with INDL should keep an eye on the Direxion Daily India Bear 3X Shares (NYSE: INDZ) as well.
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