The Surprising Bets Financial Pros Are Making

Back in April, we pointed out that financial pros searched out the 3x Leveraged QQQ ETF (TQQQ) far more than any other leveraged equity ETF.

Right behind it was the Leveraged 3x QQQ Short ETF (SQQQ) and the 3x Leveraged Semiconductor ETF (SOXL).

Guess what wasn’t on that list…regional banks.

Yet, somehow, the 3x Leveraged Bullish Regional Bank ETF (DPST) made the top three on our list.

So, are they finally changing their tune on the beaten down money centers?

Key Facts About DPST

• Net assets: $680 million
• 12-month trailing yield: 2.24%
• Inception: August 19, 2015
• Expense ratio: 0.93%
• Number of holdings: N/A

If you’re looking for some extra exposure to regional banks, the Direxion 3x Leveraged Regional Bank ETF (DPST) is about as good as you can get.

The ETF tracks the daily performance of the S&P Regional Banks Select Industry Index by 300%.

Therefore, it resets every day.

To do this, Direxion employs derivatives rather than owning a bunch of stocks. That is why the expense ratio is a bit high.

The underling index has about 139 holdings, including the following as the top 10:

Source: Direxion

Performance

As most of you already know, regional banks…well…they’ve had a tough go lately.

The overall index is down slightly over a 5-year period.

But given the leverage, the ETF is down quite a bit

Source: Direxion

Generally speaking, it’s not a great idea to hold onto leveraged ETFs as an investment. Unless you’re in a perpetual bull market, their value tends to erode over time.

Plus, one bear market can wipe out all your gains for years and then some.

Competition

Since we’re looking at leveraged ETFs, we pulled in the top 5 searches by financial pros in the last month.

This list includes bullish and bearish bets on the NASDAQ 100, Semiconductors, and even Biotechs. 

• ProShares UltraPro QQQ ETF (TQQQ): Bullish ETF that tracks the NASDAQ 100 daily movements with 300% leverage.
• ProShares UltraPro Short QQQ (SQQQ): The same as the TQQQ except bearish.
• Direxion Daily Semiconductor Bull 3x Shares (SOXL): Bullish ETF that tracks the S&P Semiconductor Index daily movements with 300% leverage.
• Direxion Daily S&P Biotech Bull 3x Shares (LABU): Bullish ETF that tracks the S&P Biotech Index daily movements with 300% leverage.

We want to note that the ‘dividends’ aren’t regularly paid on many of these ETFs, but they do happen. So don’t count on them going forward/

That said, you can see how the leverage on the DPST crushed returns when the overall index is only down a few percent over the 5-year period.

Our Opinion 2/10 

We’re not a big fan of leveraged ETFs for anything more than trading instruments.

If you want to invest in regional banks, we prefer an ETF like the S&P Regional Banking ETF (KRE). It’s plenty liquid and you can use options to increase leverage should you choose.