In this article, we will discuss the 10 best performing leveraged ETFs in 2022. If you want to explore similar ETFs, you can also take a look at 5 Best Performing Leveraged ETFs in 2022.
What Are Leveraged ETFs?
Leveraged ETFs are exchange–traded funds that use financial derivatives and debt to amplify the returns of an underlying index. They are designed to provide investors with a high degree of exposure to a particular asset class or market segment. Unlike traditional ETFs, leveraged ETFs are designed to magnify the return of the underlying index. They do this by using derivatives such as options and futures contracts, as well as borrowing money to increase the size of their portfolio. This can lead to amplified gains, but also amplified losses.
It’s a Two Way Street
Let’s take an example to understand the behavior of a leveraged ETF. A 3x leveraged ETF seeks to deliver three times the daily performance of the underlying index. So, if the underlying index rises 1%, the ETF will rise 3%. Conversely, if the underlying index falls 1%, the ETF would decline 3%. Leveraged ETFs are a popular tool for traders and investors who want to take advantage of short–term price movements. Leveraged ETFs can also be used to hedge against market volatility or to diversify a portfolio. However, investing in leveraged ETFs carries a high degree of risk by nature, and investors should evaluate their risk tolerance before exploring this instrument.
By design, leveraged ETFs are more suitable for day traders or investors with a short-term time horizon. For investors that do not have the risk tolerance for trading leveraged ETFs, they can opt for individual stocks that are among these funds’ holdings. Some of the most popular long-term stocks among elite money managers and also present in leveraged ETFs include Johnson & Johnson (NYSE:JNJ), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP).
Photo by Behnam Norouzi on Unsplash
Our Methodology
To determine the best performing leveraged ETFs in 2022, we screened for leveraged ETFs with varying ratios including 1.25, 1.5x, 2x, and 3x. We reviewed these ETFs’ year-to-date performance, as of December 9, and narrowed down our selection to the best performing leveraged ETFs. We used the S&P 500 as a benchmark to compare the performance of each ETF. Though some of them are down, they are not down as much as the S&P 500, which closed a little above 3,900 on December 9 and is down more than 18% for the year.
Along with each ETF, we have mentioned its leverage ratio, the index it tracks, the technique it uses, its portfolio breakdown, and most notable holdings. These ETFs are ranked in increasing order of their year-to-date performance.
Best Performing Leveraged ETFs in 2022
10. ProShares Ultra Basic Materials (NYSEARCA:UYM)
Leverage: 2x
YTD Return as of December 9: -17.81%
The ProShares Ultra Basic Materials (NYSEARCA:UYM) invests directly and through derivatives in stocks that belong to the materials sector. The fund aims to deliver 2x the daily performance of the Dow Jones U.S. Basic Materials Index and employs a full replication technique. The fund has an expense ratio of 0.95% and a yield of 0.75%. As of December 9, the ProShares Ultra Basic Materials (NYSEARCA:UYM) has lost 17.81% year to date, outperforming the S&P 500 by roughly 1%, and is placed on our list of the best performing leveraged ETFs in 2022.
The ProShares Ultra Basic Materials (NYSEARCA:UYM) has roughly $47.4 million in assets under management and 53 holdings. The fund has a top ten holdings concentration of 149.40%. One of the fund’s top ten holdings is Linde plc (NYSE:LIN). The stock has surged more than 11% over the past six months, as of December 9.
On October 31, Deutsche Bank analyst David Begleiter raised his price target on Linde plc (NYSE:LIN) to EUR 355 from EUR 350 and maintained a Buy rating on the shares.
As of September 30, Impax Asset Management is the largest shareholder in Linde plc (NYSE:LIN) and has a position worth $816.9 million.
Here is what ClearBridge Investments had to say about Linde plc (NYSE:LIN) in its third-quarter 2022 investor letter:
“Seeing better opportunities elsewhere in the materials sector, we exited our position in Ecolab and added to copper producer Freeport-McMoRan (FCX), which supplies a much-needed resource for the energy transition, and specialty chemical company Linde plc (NYSE:LIN), which has historically held onto pricing gains it has achieved following increases in energy costs. We think this pricing power should protect profitability during the acute inflationary phase and potentially lead to margin expansion when cost pressures abate. Linde also continues to be well-positioned on hydrogen and carbon capture with contract-backed project capex likely accelerating in the medium term as the recently passed Inflation Reduction Act rolls out.”
In addition to Johnson & Johnson (NYSE:JNJ), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP), Linde plc (NYSE:LIN) is also a stock that is popular among elite money managers.
9. Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE)
Leverage: 3x
YTD Return as of December 9: -16.92%
The Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) uses derivatives, such as futures, or other funds to invest in stocks of companies operating in the healthcare sector. The fund invests in large-cap stocks and aims to deliver 3 times the daily return of the Health Care Select Sector Index. The fund has declined by 16.92% year to date, as of December 9, and has outperformed the S&P 500 by roughly 2%. The Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) is one of the best performing leveraged ETFs in 2022.
The Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) has $228.65 million in assets under management and an expense ratio of 0.96%. The fund has a trailing twelve-month yield of 0.27% and pays out dividends on a quarterly basis. The fund has 68 holdings and a top ten holdings concentration of 74.17%.
One of the top holdings of the Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) is Thermo Fisher Scientific Inc. (NYSE:TMO). This December, RBC Capital analyst Conor McNamara started coverage of Thermo Fisher Scientific Inc. (NYSE:TMO) with an Outperform rating and a $661 price target. As of December 9, the stock has returned 10% to investors over the past six months.
As of September 30, Ken Fisher’s Fisher Asset Management is the dominant investor in Thermo Fisher Scientific Inc. (NYSE:TMO) and has a position worth $1.16 billion in the company.
Here is what Aristotle Atlantic Partners, LLC had to say about Thermo Fisher Scientific Inc. (NYSE:TMO) in its third-quarter 2022 investor letter:
“Thermo Fisher Scientific Inc. (NYSE:TMO) is considered one of the world’s leaders in serving science. The company makes and distributes analytical instruments, scientific equipment, consumables and other laboratory supplies. Thermo Fisher Scientific operates in four segments: Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics and Laboratory Product and Biopharma Services. We see Thermo Fisher Scientific as one of the leading management teams in our coverage both through solid execution and savvy Mergers & Acquisitions (M&A). The company is a diversified provider of research and discovery instruments, tools, consumables, and services, and offers a broad-based play on the increased Research & Development (R&D) spend from the biopharma industry. Thermo Fisher Scientific continues to see organic growth in the high single digits with acquisitions increasing their overall portfolio composition and gaining market share.”
8. Direxion Daily Utilities Bull 3X Shares (NYSEARCA:UTSL)
Leverage: 3x
YTD Return as of December 9: -13.87%
The Direxion Daily Utilities Bull 3X Shares (NYSE:UTSL) has an expense ratio of 0.96% and a yield of 1.73%. The ETF is designed to deliver 3x the daily returns of the Utilities Select Sector Index. The fund makes use of derivatives such as futures and swaps to structure its portfolio and invests in utilities stocks of diverse market caps. As of December 9, the fund has lost 13.87% year to date and has outperformed the S&P 500 by approximately 4%. The fund is one of the best performing leveraged ETFs in 2022.
The Direxion Daily Utilities Bull 3X Shares (NYSE:UTSL) has $22.73 million in assets under management and has 35 holdings. The fund has a top ten holdings concentration of 85.36%. Exelon Corporation (NASDAQ:EXC) is one of the top holdings of the fund. The stock has gained 7% over the past twelve months, as of December 9, and is offering a dividend yield of 3.26%.
On October 3, Credit Suisse analyst Nicholas Campanella started coverage of Exelon Corporation (NASDAQ:EXC) with an Outperform rating and a $43 price target.
As of the close of Q3 2022, GQG Partners is the top shareholder in Exelon Corporation (NASDAQ:EXC) and has disclosed stakes worth $800 million in the company.
7. ProShares Ultra Health Care (NYSEARCA:RXL)
Leverage: 2x
YTD Return as of December 9: -13.05%
The ProShares Ultra Health Care (NYSEARCA:RXL) has fallen by 13.05% year to date, as of December 9, but is one of the best performing leveraged ETFs in 2022 since it has outperformed the S&P 500 by roughly 5%. The fund aims to deliver twice the daily returns of the Dow Jones U.S. Health Care Index by using a full replication technique. The fund populates its portfolio by using derivates, such as swaps. The fund has an expense ratio of 0.95%.
The ProShares Ultra Health Care (NYSEARCA:RXL) has 162 holdings and a top ten holdings concentration of 143.99%. The fund’s assets under management are valued at $109.17 million. One of the fund’s top holdings is AbbVie Inc. (NYSE:ABBV). This November, Credit Suisse analyst Trung Huynh took coverage of AbbVie Inc. (NYSE:ABBV) with an Outperform rating and a $170 price target. The analyst also called it one of his top ideas in the large-cap biopharma space.
As of September 30, Arrowstreet Capital is the largest investor in AbbVie Inc. (NYSE:ABBV) and has a position worth $431.6 million. As of December 9, AbbVie Inc. (NYSE:ABBV) has gained over 20% year to date and is offering a forward dividend yield of 3.63%.
Here is what Baron Funds had to say about AbbVie Inc. (NYSE:ABBV) in its third-quarter 2022 investor letter:
“AbbVie Inc. (NYSE:ABBV) is a drug developer best known for Humira, an immunosuppressant that is the best selling drug of all time. Given outsized key product risk (patent cliff and generic launches beginning in 2023), AbbVie has broadened its pipeline, highlighted by its Allergan acquisition. Shares fell on results that missed consensus and indications that legacy franchises were outperforming newer product launches, calling into question AbbVie’s long-term strategy. With promising assets in the pipeline and its robust cash flow profile, we believe AbbVie will grow well into the future.”
6. ProShares Ultra Utilities (NYSEARCA:UPW)
Leverage: 2x
YTD Return as of December 9: -4.50%
The ProShares Ultra Utilities (NYSEARCA:UPW) aims to deliver 2 times the daily returns of the Dow Jones U.S. Utilities Index via a full replication technique. The fund makes use of derivatives, such as swaps, to structure its portfolio. The fund has an expense ratio of 0.95% and a yield of 1.44%. The fund has $16.15 million in assets under management. The fund has lost 4.50% year to date, as of December 9, and has outperformed the S&P 500 by over 10%, and is therefore ranked among the best performing leveraged ETFs in 2022.
The ProShares Ultra Utilities (NYSEARCA:UPW) has 58 holdings and a top ten holdings concentration of 153.92%. The Southern Company (NYSE:SO) is one of the fund’s top holdings. The Southern Company (NYSE:SO) has gained more than 5% over the past twelve months, as of December 9, and is offering a dividend yield of 3.90%.
This October, Guggenheim analyst Shahriar Pourreza updated his price target on The Southern Company (NYSE:SO) to $69 from $80 and maintained a Buy rating on the shares.
As of the end of Q3 2022, Renaissance Technologies is the largest stockholder in The Southern Company (NYSE:SO) and has a position worth $208.2 million.
For risk-averse investors, leveraged ETFs might not be as suitable as individual stocks that are backed by solid fundamentals and healthy financial resources. Some leading companies with solid fundamentals that investors might be interested in studying include Johnson & Johnson (NYSE:JNJ), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP).
Click to continue reading and see 5 Best Performing Leveraged ETFs in 2022.
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Disclosure: None. 10 Best Performing Leveraged ETFs in 2022 is originally published on Insider Monkey.