Exchange-traded funds (ETFs) provide investors a straightforward way to own a single security whose performance is based on a much larger, basket of securities. Typically, the basket is constructed to track the performance of an underlying index, such as the S&P 500. Likewise, leveraged ETFs provide investors with a single investment vehicle representing a broad basket of securities. But these leveraged ETFs are much more complex instruments than traditional ETFs and tend to focus their holdings heavily on debt and financial derivatives such as swaps in order to amplify the returns on the index being tracked.

Key Takeaways

  • The leveraged ETFs with the highest 3-month average daily volume are SPXS, TQQQ, and SPXU.
  • These ETFs provide leveraged exposure to either the S&P 500 Index or the NASADQ-100 Index.
  • The top holdings of those two indexes include Apple, Microsoft, and Amazon.

Leveraged ETFs often provide investors with the ability to achieve 2x or 3x the daily performance of their index. But some offer 0.5x, 1.5x, or even inverse leverage, such as -2x and -3x the performance. Thus, leveraged ETFs are suitable only for experienced investors with a high level of risk tolerance. They are most often used as short-term trading vehicles with most investors exiting their positions in just a day or few days.

Leveraged ETFs can be riskier investments than non-leveraged ETFs given that they respond to daily movements in the underlying securities they represent, and losses can be amplified during adverse price moves. Furthermore, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you should not expect that they will do so on longer-term returns. For example, a 2x ETF may return 2% on a day when its benchmark rises 1%, but you shouldn't expect it to return 20% in a year when its benchmark rises 10%. For more details, see this SEC alert.

The leveraged ETF universe is comprised of about 76 funds, excluding funds with less than $50 million in assets under management (AUM). High trading volumes are the key gauge that many investors look at to decide which leveraged ETFs have been generating the most interest. These highly traded ETFs are likely to provide the most liquidity and, thus, may be easier to trade in and out of. The most traded leveraged ETF, based on 3-month average daily trading volume, is the Direxion Daily S&P 500 Bear 3X Shares (SPXS). We examine the top 3 most traded leveraged ETFs below. All numbers in this story are as of August 27, 2020.

Inverse ETFs can be riskier investments than non-inverse ETFs, because they are only designed to achieve the inverse of their benchmark's one-day returns. You should not expect that they will do so on longer-term returns. For example, an inverse ETF may return 1% on a day when its benchmark falls -1%, but you shouldn't expect it to return 10% in a year when its benchmark falls -10%. For more details, see this SEC alert.

Direxion Daily S&P 500 Bear 3X Shares (SPXS)

  • 3-Month Average Daily Volume: 38,429,920
  • Performance over 1-Year: -72.0%
  • Expense Ratio: 1.08%
  • Annual Dividend Yield: 2.04%
  • Assets Under Management: $795.6 million
  • Inception Date: November 5, 2008
  • Issuer: Direxion

SPXS offers 3x daily short exposure to the S&P 500 Index, an index of the 500 largest U.S. companies. On a day when the S&P 500 falls 1%, SPXS is expected to provide investors with a return of 3% on that same day. The ETF uses securities including index swaps on the S&P 500 in order to achieve the 3x daily short leverage for bearish investors. The fund resets at the end of each day, which will result in compounding of returns if held for multiple periods. 

ProShares UltraPro QQQ (TQQQ)

  • 3-Month Average Daily Volume: 33,404,440
  • Performance over 1-Year: 171.8%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: 0.03%
  • Assets Under Management: $8.4 billion
  • Inception Date: February 9, 2010
  • Issuer: ProShares

TQQQ offers 3x daily long exposure to the NASDAQ-100 Index, an index of the 100 largest domestic and international non-financial companies listed on the Nasdaq Stock Exchange. If the NASDAQ-100 rises 1% on a given day, then TQQQ will rise 3%. The ETF uses a variety of index swaps in order to provide the 3x daily long leverage for bullish investors. It resets on a daily basis, resulting in compounding of returns when held for multiple periods. It is best used by sophisticated investors as part of a short-term trading strategy. 

ProShares UltraPro Short S&P 500 (SPXU)

  • 3-Month Average Daily Volume: 32,643,840
  • Performance over 1-Year: -72.0%
  • Expense Ratio: 0.91%
  • Annual Dividend Yield: 2.86%
  • Assets Under Management: $982.5 million
  • Inception Date: June 23, 2009
  • Issuer: ProShares

SPXU offers 3x daily short exposure to the S&P 500 Index, similar to the SPXS outlined above. The ETF uses various index swaps and other securities in order to provide bearish investors a daily inverse leveraged position to U.S. large-cap equities. When those equities fall on any given day, SPXU is expected to rise by three times as much over the same day. Similar to the two funds above, it resets on a daily basis, which results in the compounding of returns when held for multiple periods.