Leveraged exchange-traded funds (ETFs) substantially increase the potential reward of an investment by affording investors the chance to generate double or triple the returns of the underlying securities within a portfolio. Of course, with higher reward potential comes increased risk as well. These strategies are sophisticated and typically designed for active traders rather than long-term buy-and-hold investors. Still, for those prepared to make sound investing decisions the use of leverage in ETF holdings can be a powerful way to amplify gains.
Leveraged ETFs have become increasingly popular and now cover a broad range of themes, including sector- and industry-specific focuses all the way down to magnified plays on individual stocks. Still, many investors prefer these funds for the access they provide to a basket of holdings with a single trade. Here, we explore three funds that offer exposure to an entire industry at once with powerful 3X leverage. All of these are intended as daily trades, meaning that the leverage resets daily in each case and that long-term investment in these funds is not advisable.
1. Direxion Daily Semiconductor Bull 3X Shares
The Direxion Daily Semiconductor Bull 3X Shares (NYSE:) is a fund providing targeted exposure to the global semiconductor industry. The fund focuses on large-cap firms from developed markets, and with about 30 holdings, it gives investors access to essentially all of the top semiconductor makers worldwide. Notably, for a semiconductor fund, the portfolio is fairly evenly distributed, with no single name or outlier in terms of exposure. This can be advantageous for investors looking to broadly capitalize on the semiconductor market without emphasizing a particular company or region.
In the United States, the potential for tariffs on semiconductor firms from Taiwan threatens to destabilize the market. SOXL’s broad exposure helps to mitigate the risk from these companies in particular. Further, volatility in the space may play to a short-term investor’s advantage in some cases.
For a 3X leveraged fund, SOXL offers a surprisingly moderate fee, with an expense ratio of just 0.76%. With a 1-month trading volume of more than 80,000,000, liquidity should be no issue for investors looking to trade actively.
2. Direxion Daily Aerospace & Defense Bull 3X Shares
The Direxion Daily Aerospace & Defense Bull 3X Shares Direxion Daily Aerospace (NYSE:) is similar in many ways to SOXL above, aside from its focus on the defense space. For an expense ratio of 0.97%, investors get 3X leverage on a portfolio of nearly 40 U.S. aerospace and defense firms across different market caps. Big names like GE (NYSE: GE) and RTX Corp. (NYSE: RTX) have outsized positions in the portfolio, but most of the rest of the securities in the basket are fairly evenly weighted.
Defense demand is expected to increase amid heightened political turmoil worldwide and based on the anticipated spending priorities of the Trump administration, among other factors. Still, like SOXL, DFEN is not intended as a long-term play but rather as a way to capitalize on very short-term fluctuations in the defense industry. Investors will have a hard time topping DFEN for leveraged access to this market.
3. MicroSectors Oil & Gas Exp. & Prod. 3x Leveraged ETN
An exchange-traded note (ETN) rather than an ETF, the MicroSectorsTM Oil & Gas Exploration & Production 3X Leveraged ETNs (NYSE:) has a somewhat different structure from the two funds above. However, from the perspective of an investor, it generally functions very similarly. OILU tracks an index of U.S.-based large-cap companies active in the exploration and production of and .
OILU is a strong play for investors looking for targeted exposure to the fossil fuels industry in the United States in particular. Because many energy firms have a global scope, this allows for a narrower focus that may be useful if tariffs become a factor in energy trading with the United States. Given the new administration’s stated focus on making domestic energy production increasingly accessible, the firms OILU tracks may be most likely to benefit from regulatory changes as they happen.
OILU has an expense ratio of 0.95%, making it comparable in cost to DFEN above.
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