The last thing on the minds of most investors these days is the desire to use leverage to improve investment returns. And that's good news. So, to maximize returns and increase exposure to various slices of the market, investors can consider using exchange-traded funds (ETFs) designed to return three times the yields of the underlying investments.

IN PICTURES: World's Greatest Investors

Triple The Upside/Downside On Financials
The Direxion Financial Bull 3X Shares ETF (NYSE:FAS) is designed to return three times the performance of the Russell 1000 Financial Services Index ("Financial Index"). The underlying financial services index is a capital weighted index of financial service providers ranging from large capitalization banks, like Wells Fargo (NYSE:WFC) and Goldman Sachs (NYSE:GS), to insurance providers, like Aflac (NYSE:AFL) and Allstate (NYSE:ALL). True to form, the FAS ETF carried out its mission and posted a negative return in slight excess of 64% for year-to-date ended February 11, while the Russell 1000 Financial Services Index declined approximately 22% over the same period. (These funds seem simple, but more goes on behind the scenes. Read Dissecting Leveraged ETF Returns to learn more.)

How Does It Work?
The FAS ETF will invest a minimum of 80% of its net assets in long positions of the individual securities that make up the Financial Index. The fund also invests in financial instruments that provide leveraged and unleveraged exposure to the Financial Index, thus, creating the ability for returns of the underlying index to be tripled. The balance of the net assets are held in money market instruments.

Can I Play Downside?
I knew you'd ask! The other side of the coin offers investors the opportunity to benefit from the downward slide of financials in the Direxion Financial Bear 3X Shares ETF (NYSE:FAZ). The FAZ fund is designed to return the inverse of the Financial Index by creating short positions as opposed to holding long positions in equities, like its Bull friendly sister, the FAS ETF. The FAZ ETF is up approximately 22% year-to-date ended February 11. (For more on using inverse ETFs when the market is down, be sure to read Inverse ETFs Can Lift a Falling Portfolio.)

Other 3X Options
ETFs that offer three times the up (Bull) and three times the down (Bear) also are available as sector-specific funds. These include: the Direxion Technology Bull 3X Shares (NYSE:TYH), the Direxion Technology Bear 3X Shares (NYSE:TYP), the Direxion Energy Bull 3X Shares (NYSE:ERX) and the Direxion Energy Bear 3X Shares (NYSE:ERY).

Final Thoughts
Given the volatility in the market, only investors who have the time to pay attention to these investment vehicles should consider allocating a small portion of their investments into the three- times returns ETFs. The upside potential looks explosive if you're on the right side of the market movement. However, beware of the compounded negative returns on the other side.

Related Articles
  1. Professionals

    Are ETFs a Good Fit for 401(k) Plans?

    The popularity of ETFs among investors and advisors continues to grow. But are they a good fit for 401(k) plans?
  2. Stock Analysis

    Will WYNN Continue to Rally?

    Wynn Resorts has experienced a rally recently. Will it remain a good bet?
  3. Stock Analysis

    Don't Be Fooled by the Market's Recent Rally

    The bulls won for a bit in early October, but will bears have the last laugh?
  4. Stock Analysis

    Will Twitter's Stock Find its Wings Soon?

    Twitter is an enigma to many investors, but its story is pretty straightforward.
  5. Investing

    Binary Options For Capital-Protected Investments

    Binary options may sound complex, but they can be used to create capital-protected investments. Here's how.
  6. Mutual Funds & ETFs

    The Top Vanguard Emerging Market ETF

    Learn why growth investors should consider investing in VWO's portfolio of emerging market stocks.
  7. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  8. Investing Basics

    How to Pick the Best Muni Bonds and Muni Bond ETFs

    Municipal bonds are a good addition to a diversified portfolio as long as you choose correctly based on population and local economic trends.
  9. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  10. Mutual Funds & ETFs

    Top 3 Emerging Markets Bond Mutual Funds

    Discover detailed analysis of the top three mutual funds offering exposure to the emerging markets bonds, and learn about the suitability of these funds.
  1. How do hedge funds use equity options?

    With the growth in the size and number of hedge funds over the past decade, the interest in how these funds go about generating ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  4. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  5. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!