The banking sector is the section of the economy devoted to the holding of deposits, extension of credit, and trading and investing of financial assets. There are a number of exchange traded funds (ETFs) that track the banking sector.
Leveraged ETFs are exchange traded funds that seek to return some multiple (e.g., 2x or 3x) the actual performance of the index it tracks. A leveraged ETF is a fund that uses financial derivatives and debt to amplify the returns of an underlying index. These funds aim to keep a constant amount of leverage during the investment time frame, such as a 2:1 or 3:1 ratio.
- Leveraged ETFs are often used by investors who seek to take advantage of an index's short-term momentum or some type of speculation.
- This can both amplify positive returns, as well as compound losses when the price moves against you.
- Here, we look at some leveraged ETFs that track the banking sector, including leveraged bear funds in addition to long ETFs.
Leveraged ETFs That Track Banks
ProShares is a leading company offering leveraged ETFs that track a variety of sectors. Alternative ETFs, such as those offered by ProShares, provide investors with the opportunity to decrease risk and volatility, and the opportunity to maintain a speculative position without the obligation of purchasing derivatives. Direxion also offers a number of leveraged ETFs that seek to amplify the returns of an underlying index.
Some of the most common leveraged ETFs that track the banking sector are below.
The ProShares UltraPro Financials (FINU)
This ETF invests in securities and derivatives that offer three times (3x) daily long leverage to the Dow Jones U.S. Financials Index for investors with a bullish short-term outlook for financials. This fund is non-diversified, and its primary holdings as of 2018 include Berkshire Hathaway and JPMorgan Chase.
The ProShares Ultra Financials (UYG)
This leveraged ETF provides daily investment results that correspond to two times (2x) the daily performance of the Dow Jones U.S. Financials Index. The fund invests in securities and derivatives chosen to mirror this primary index for tracking the financial sector. While the financial sector includes industries besides the banking industry, banks are a major component of the sector and the index as well. Primary holdings of this ETF as of 2018 include Berkshire Hathaway, Bank of America, and Visa.
The ProShares UltraPro Short Financials (FINZ)
This fund aims to achieve three times (3x) the opposite, or inverse, of the daily performance of the Dow Jones U.S. Financials Index. This non-diversified fund makes investments in derivatives that, in combination, provide investors with a return based on declines in the value of the Dow financial index, which measures the overall financial services sector performance in the U.S. equity market.
Direxion Daily Financial Bull 3x Shares (FAS)
The Direxion Financial Bull 3x fund is designed to have daily investment results equal to 300 percent of the performance of the Russell 1000 Financial Services Index. The fund creates long positions by investing at least 80 percent of its assets in the securities that make up the Russell 1000 Financial Services Index or in financial instruments that provide leveraged or unleveraged exposure to the index. These financial instruments include futures contracts, options on securities, indexes, swap agreements, and contracts for differences (CFDs).
Direxion Daily Financial Bear 3X Shares (FAZ)
This ETF aims for daily investment results that approximate 300 percent of decreases in the performance of the Russell 1000 Financial Services Index. This fund creates short positions by investing at least 80 percent of its assets in futures contracts, options on securities, swap agreements, and other financial instruments that, in combination, provide inverse leveraged exposure to the Russell 1000 Financial Services Index.