The Direxion Daily Gold Miners Index Bull 3x Shares (NUGT) is a 3x leveraged exchange-traded fund (ETF) that should be used for short-term trades only. In fact, Direxion points out on their website that the returns the ETF seeks on its benchmark index, the Gold Miners Index, are for a single day. Direxion also states that the fund should only be used by "investors who understand leverage risk and who actively manage their investments."
NUGT comes with a relatively hefty 1.23% expense ratio. But that’s not the only concern. For instance, the fund attempts to track 300% of the performance of the NYSE Arca Gold Miners Index via futures contracts, short positions, reverse purchase agreements, options, swap agreements, and similar exotic trading tactics. This equals high risk. That said, it’s likely that you’re looking to trade NUGT, not invest in it. If that’s the case, then it’s possible to see substantial returns in a very short period of time. The key is to make sure you’re on the right side of the trend, which makes trading a lot easier due to higher odds of appreciation, which leads to the ability to lock in gains.
In deciding whether to trade NUGT, a trader would need to determine in which direction they believe the Gold Miners Index to move based on their research of the gold market. In addition, it's important to assess the top holdings of the ETF and determine where those positions are likely to move as well. For example, NUGT's largest holding, at 4.13% of the portfolio, is VanEck Vectors Gold Miners ETF (GDX).
Though 4.13% is a small percentage, it gives a slight idea into what the performance of the ETF will be. In this case, it is worth analyzing the VanEck Vectors Gold Miners ETF as well. If one takes a look at this ETF, it shows that its largest investments are in some of the largest gold mining companies in the world, such as Newmont and Barrick. Understanding how those companies are performing will provide additional insight. But it is important to stress that a leveraged ETF is meant for short-term gain and operates on a speculative nature, investing in riskier products, such as debt and derivatives, to amplify returns.
NUGT Key Metrics as of Feb. 11, 2020
Purpose: To track 300% of the performance of the NYSE Arca Gold Miners Index
Net Assets: $1.5 billion
Average Volume: 10.5 million
Inception Date: Dec. 8, 2010
1-Year Performance: +56%
Expense Ratio: 1.23%
Top 3 Holdings:
VanEck Vectors Gold Miners ETF (GDX) - 4.13%
Future on VanEck Vectors Gold Miners ETF Dec49 - 2.19%
JP Morgan 100% US Treasury-L - 0.54%
The Bottom Line
The Daily Gold Miners Index Bull 3x (NUGT) Shares can be an attractive trade in the short term for investors that are aware of the risk and timeframe of trading a leveraged ETF, as well as understanding the gold market. However, it is important to understand the increased risks of investing in a leveraged fund that can amplify returns but also amplify losses. (For more, see: Does It Still Pay to Invest in Gold?)