8 Best Leveraged ETFs of May 2024 (2024)

Leverage amplifies both investment returns and risk. But with greater risk comes greater rewards, at least when times are good. When an investment doesn’t work out, leverage can make things a lot more painful. For this reason, only experienced investors with a high risk tolerance should employ leverage.

Investing strategies that employ leverage can be complicated, making leveraged ETFs a better option for many investors. This class of exchange-traded funds aims to provide investors with a return of a specific multiple to an underlying asset class or benchmark.

Take the S&P 500, for example. If the S&P 500 returned 20% in a single session, a leveraged ETF with three times daily leverage would return 60% that day. If you had invested $100 in the leveraged ETF, you would have closed the day with a $60 profit.

To help you choose the best funds for your short-term investing strategies, Forbes Advisor has compiled a list of what we believe are among the best leveraged ETFs available on the market. Note that our list excludes inverse ETFs, which we cover elsewhere.

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To choose the best ETFs for this listing, we screened over 170 ETFs for the following characteristics:

• Levered mandate. Funds must have a leverage factor of at least 1.5X the daily returns of the underlying benchmark.
• Average daily volume of at least $15 million. Leveraged ETFs are intended for short-term, intraday trading, and positions are closed out at the end of each day; this means liquidity is of vital importance.
• Assets under management of at least $200 million. We omitted any funds with less than $200 million of net assets.
• Expense ratios below 1.25%. Only funds offering reasonably cheap exposure to investors were considered.

To learn more about our rating and review methodology and editorial process, check out our guide on how Forbes Advisor rates investing products.

Please note that the stocks above were selected by an experienced financial analyst, but they may not be right for your portfolio. Before you decide to purchase any of these stocks, do plenty of research to ensure they are aligned with your financial goals and risk tolerance.

Leveraged ETFs are exchange-traded funds aiming to amplify an underlying index’s returns.

Whereas a conventional exchange-traded fund like the SPDR S&P 500 ETF (SPY) aims to duplicate the performance of the S&P 500 index over the long-term, the ProShares Ultra S&P 500 ETF (SSO) attempts to deliver three times the daily return of the index during a single session.

Leveraged ETFs usually reset their gains and losses each day, which compounds the fund’s gains and losses over the long term. The funds are basically marked to market every night, starting out the next day with a clean slate as if the returns of the prior session had not existed.

For this reason, investing professionals do not recommend that anyone hold leveraged ETFs over periods of time longer than a single session.

Let’s say an investor purchases shares of a three times leveraged ETF for $100. If the underlying index rises 10% in a single session, the investor should gain 30%, boosting the investment to $130.

The leveraged ETF resets for the next session. If the underlying index drops 5% the following day, the value of the position will probably decline 15% to $110.50.

As markets and stock indexes rise and fall over time, longer-term positions in leveraged ETFs can become very challenging to follow, thanks to amplified gains and losses.

Leveraged ETFs are best for experienced investors with a clear understanding of the risks involved and how leverage works.

These ETFs offer an opportunity to add considerable value to your overall investment strategy for traders with significant experience, an appetite for risk and the desire to amplify daily returns in both up and down markets.

In addition to offering a way to augment daily returns, particularly during periods of market volatility, leveraged ETFs can also be effectively used for hedging purposes. If enhanced returns and, or hedging strategies are your objective, leveraged ETFs can open up new opportunities.

Remember to do your research and approach leveraged funds with caution, as losses can be magnified similarly to returns.

An inverse leveraged ETF aims to provide investors a multiple of the opposite of a benchmark’s performance through the use of derivative instruments like swaps and futures contracts.

For example, a two times inverse leveraged ETF would provide double the opposite returns of its benchmark index. If the benchmark were the S&P 500 and the index fell 10%, the inverse leveraged ETF should gain 20%. But by the same token, if the S&P were to gain 10%, the inverse leveraged ETF should lose 20% over the same time period.

The key idea in that example is “should,” because the returns on inverse ETFs can differ from the inverse of the underlying index, especially over longer periods of time.

According to the SEC, between Dec. 1, 2008, and April 30, 2009, a particular benchmark index gained 2%. However, a leveraged ETF seeking to deliver twice that index’s daily return fell by 6%—and an inverse ETF seeking to deliver twice the inverse of the index’s daily return fell by 25%.

To mitigate this sort of outcome, many inverse leveraged ETFs reset their returns daily.

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