Leveraged ETFs allow investors to enhance asset exposure without taking on a margin loan. Below we'll review the 9 best leveraged ETFs for 2024.
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In a hurry? Here's the list:
- TQQQ – ProShares UltraPro QQQ
- QLD – ProShares Ultra QQQ
- TECL – Direxion Daily Technology Bull 3X Shares
- SSO – ProShares Ultra S&P 500
- UPRO – ProShares UltraPro S&P 500
- SPXU – ProShares UltraPro Short S&P 500
- TNA – Direxion Daily Small Cap Bull 3X Shares
- TMF – Direxion Daily 20-Year Treasury Bull 3X
- UST – ProShares Ultra 7-10 Year Treasury
Contents
Introduction – Why Leveraged ETFs?
If you've landed here, you likely already know what leveraged ETFs are and how they work. Leveraged ETFs allow you to enhance investment exposure without taking on margin, and at degrees greater than what margin would allow.
Leveraged ETFs usually come in either 2x or 3x, providing 200% or 300% exposure to the daily returns of the underlying index, resetting daily. There are also inverse leveraged ETFs (-2x and -3x), allowing bears to bet on downward movement. Because of their complex nature involving swaps, debt, and daily rebalancing, leveraged ETFs are likely only appropriate for experienced investors with a high risk tolerance.
Liquidity is an important factor when choosing leveraged ETFs, as low-volume leveraged ETFs are often at risk of closure, and most investors don't hold them long-term; they are more popular among day traders. That said, I've explained before why I don't think leveraged ETFs are unsuitable for holding long-term, despite the fearmongering perpetuated in the financial blogosphere. With proper use, employing leverage can potentially enhance returns drastically (maybe even enough to beat the market), albeit obviously with a much higher risk profile, as leverage also magnifies losses. This enhanced exposure comes at a cost; leveraged ETFs usually carry high fees.
Be sure to read up on the dangers and details of using leverage before blindly buying in. Again, leveraged ETFs are better suited for experienced investors.
Below are some of the best leveraged ETFs.
The 9 Best Leveraged ETFs
Below is a list of the 9 best leveraged ETFs to increase the risk/return profile in your portfolio.
TQQQ – ProShares UltraPro QQQ
The ProShares UltraPro QQQ ETF (TQQQ) is the most popular leveraged ETF, with over $8 billion in assets under management. The fund seeks to deliver 300% of the daily returns of the underlying NASDAQ-100 index, composed mostly of tech and communications stocks. This ETF has an expense ratio of 0.95%.
I wrote specifically about a TQQQ strategy here.
QLD – ProShares Ultra QQQ
Those seeking 2x the NASDAQ-100 instead of 3x may want to use the ProShares Ultra QQQ ETF (QLD), seeking to provide 200% returns of the underlying index before fees. This ETF has over $3 billion in assets and an expense ratio of 0.95%.
TECL – Direxion Daily Technology Bull 3X Shares
Traders looking for a pure tech play may enjoy the Direxion Daily Technology Bull 3X Shares ETF (TECL), which seeks to provide 300% of the daily returns, before fees, of the Technology Select Sector Index. The fund has over $1 billion in assets and expense ratio of 1.08%.
SSO – ProShares Ultra S&P 500
Longer-term investors will likely want a broader, more diversified index to apply leverage to. The ProShares Ultra S&P 500 ETF (SSO) seeks to deliver 2x the returns of the famous S&P 500 index. The fund has nearly $3 billion in assets and an expense ratio of 0.90%.
UPRO – ProShares UltraPro S&P 500
Those preferring to leverage 3x the S&P 500 can use the ProShares UltraPro S&P 500 ETF (UPRO). This ETF is a major component of both the Hedgefundie portfolio and my leveraged All Weather Portfolio. The fund has roughly $1.5 billion in assets and an expense ratio of 0.92%.
SPXU – ProShares UltraPro Short S&P 500
Think the market will tank soon? The ProShares UltraPro Short S&P 500 ETF (SPXU) is a triple leveraged ETF offering 3x daily short exposure to the S&P 500 Index and carries an expense ratio of 0.91%.
TNA – Direxion Daily Small Cap Bull 3X Shares
Prefer to apply leverage to small-caps? The Direxion Daily Small Cap Bull 3X Shares ETF (TNA) provides 3x daily exposure to the Russell 2000 Index, an index comprised of 2,000 small-cap stocks. The fund has an expense ratio of 1.14%.
TMF – Direxion Daily 20-Year Treasury Bull 3X
Bonds are an important part of a diversified portfolio, especially in the context of leveraged exposure, to provide protection against black swan events. The Direxion Daily 20-Year Treasury Bull 3X ETF (TMF) seeks to provide 300% exposure to NYSE 20 Year Plus Treasury Bond Index, an index of long-term treasury bonds. TMF is another important component of the Hedgefundie portfolio, essentially to provide stock crash insurance when held alongside UPRO. The fund has an expense ratio of 1.05%.
UST – ProShares Ultra 7-10 Year Treasury
Those looking to use leverage with a lower leverage ratio and a shorter bond duration can use the ProShares Ultra 7-10 Year Treasury ETF (UST), providing 2x bull exposure to intermediate treasury bonds via the Barclays Capital U.S. 7-10 Year Treasury Index. This ETF has an expense ratio of 0.95%.
Where to Buy These Leveraged ETFs
All these leveraged ETFs should be available at any major broker. My choice is M1 Finance for U.S. investors. M1 is a great choice of broker to use leveraged ETFs because they feature dynamic rebalancing of new deposits, and one-click manual rebalancing. The broker also has zero trade commissions and zero account fees, and offers fractional shares, dynamic rebalancing, and a sleek, user-friendly interface and mobile app. I wrote a comprehensive review of M1 Finance here.
Canadians can find the above ETFs on Questrade or Interactive Brokers. Investors outside North America can use Interactive Brokers.
Disclosures: I am long UPRO and TMF.
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Disclaimer: While I love diving into investing-related data and playing around with backtests, this is not financial advice, investing advice, or tax advice. The information on this website is for informational, educational, and entertainment purposes only. Investment products discussed (ETFs, mutual funds, etc.) are for illustrative purposes only. It is not a research report. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. I mention M1 Finance a lot around here. M1 does not provide investment advice, and this is not an offer or solicitation of an offer, or advice to buy or sell any security, and you are encouraged to consult your personal investment, legal, and tax advisors. Hypothetical examples used, such as historical backtests, do not reflect any specific investments, are for illustrative purposes only, and should not be considered an offer to buy or sell any products. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here.
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What risk does TMF have of going to 0 or closing? Thanks!
How’s this for 1.5x leverage? 1/2 SPY (or VOO) and 1/2 SSO?
Rebalance quarterly.
Thanks.
Might as well go with NTSX at that point.
For Leveraged ETFs is a one off bulk purchase to hold for a year better than a regular monthly investment for 1 year?
Depends on your risk tolerance.
Hello John, thanks again for the content!
I really looking into build a small position with leverage ETFs. But What are your comments about the disclaimers on the ETFs pages which says “is not a buy-and-hold ETF, it’s a short-term tactical instrument”.
Regards
Fred
Leverage can be dangerous, especially in the form of leveraged ETFs. Make sure you understand how they work and their dangers before blindly buying in. Fund houses are required to put those warnings because they can go to zero.
Sure! That what I thought. Huge potential downside. And there is also a little asymmetry on the downside as well, right? But beside it, there is not an operational long term risk (I mean by the vehicle rather than the assets) , correct?
Thanks
Not sure what you’re asking. But yes there’s counterparty risk. LETFs close all the time. An improperly hedged LETF strategy – or even a diversified one – can also get close to zero.
Are there any leveraged inflation linked bond etfs?
Thanks
Unfortunately not. Best bet is long-term TIPS via LTPZ from PIMCO.
Exactly what I was looking for thanks! How about, TNA vs URTY? URTY cheaper and slightly higher over the last year.
I might take TNA for the liquidity, but I don’t really like leveraging small caps anyway.
Can you provide more information on why you don’t like leveraging small caps?
Thanks!
Volatility decay hurts a lot more.
Good to know, thanks!
John, can you talk more about how to measure volatility decay? Can I get an idea of how much volatility decay is exhibited by a leveraged etf by simply comparing the long term return vs. it’s stated goal? For example: TNA is supposed to track 3x the returns of the Russell 2000. Over the past 5 years the Russell 2000 has risen 50% and TNA has risen only 18%. Is it primarily volatility decay eating TNA’s returns?
Yes. If your portfolio drops by 10%, you now require an 11% gain to get back to even; that’s volatility decay. So all else equal, the more volatile the underlying index is, the more it will suffer from volatility decay. Looking at the prospectuses of these funds and doing some Googling should yield some math and charts that will illustrate it further. No, simply comparing returns doesn’t let us derive a measure of volatility decay, but as you’ve seen, you can look at UPRO vs. its underlying and TNA vs. its underlying, for example, and see that the latter suffers more from decay.
I don’t know if you’ve heard of Frank Vasquez and his new podcast at riskparityradio.com
you two have a similar way of thinking and teaching the risk parity style of portfolio construction.
I’d be interested to hear your take on his Ultimate Risk Parity Portfolio.
I haven’t. Thanks for the suggestion, Boone. I’ll check it out.