In this article, we will discuss the 10 best performing leveraged ETFs in 2022.
What Are Leveraged ETFs?
Leveraged ETFs are exchange–traded funds that use financial derivatives and debt to amplify the returns of an underlying index. They are designed to provide investors with a high degree of exposure to a particular asset class or market segment. Unlike traditional ETFs, leveraged ETFs are designed to magnify the return of the underlying index. They do this by using derivatives such as options and futures contracts, as well as borrowing money to increase the size of their portfolio. This can lead to amplified gains, but also amplified losses.
It’s a Two Way Street
Let’s take an example to understand the behavior of a leveraged ETF. A 3x leveraged ETF seeks to deliver three times the daily performance of the underlying index. So, if the underlying index rises 1%, the ETF will rise 3%. Conversely, if the underlying index falls 1%, the ETF would decline 3%. Leveraged ETFs are a popular tool for traders and investors who want to take advantage of short–term price movements. Leveraged ETFs can also be used to hedge against market volatility or to diversify a portfolio. However, investing in leveraged ETFs carries a high degree of risk by nature, and investors should evaluate their risk tolerance before exploring this instrument.
By design, leveraged ETFs are more suitable for day traders or investors with a short-term time horizon. For investors that do not have the risk tolerance for trading leveraged ETFs, they can opt for individual stocks that are among these funds’ holdings. Some of the most popular long-term stocks among elite money managers and also present in leveraged ETFs include Johnson & Johnson (NYSE:JNJ), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP).
Photo by Behnam Norouzi on Unsplash
Our Methodology
To determine the best performing leveraged ETFs in 2022, we screened for leveraged ETFs with varying ratios including 1.25, 1.5x, 2x, and 3x. We reviewed these ETFs’ year-to-date performance, as of December 9, and narrowed down our selection to the best performing leveraged ETFs. We used the S&P 500 as a benchmark to compare the performance of each ETF. Though some of them are down, they are not down as much as the S&P 500, which closed a little above 3,900 on December 9 and is down more than 18% for the year.
Along with each ETF, we have mentioned its leverage ratio, the index it tracks, the technique it uses, its portfolio breakdown, and most notable holdings. These ETFs are ranked in increasing order of their year-to-date performance.
Best Performing Leveraged ETFs in 2022
10. ProShares Ultra Basic Materials (NYSEARCA:UYM)
Leverage: 2x
YTD Return as of December 9: -17.81%
The ProShares Ultra Basic Materials (NYSEARCA:UYM) invests directly and through derivatives in stocks that belong to the materials sector. The fund aims to deliver 2x the daily performance of the Dow Jones U.S. Basic Materials Index and employs a full replication technique. The fund has an expense ratio of 0.95% and a yield of 0.75%. As of December 9, the ProShares Ultra Basic Materials (NYSEARCA:UYM) has lost 17.81% year to date, outperforming the S&P 500 by roughly 1%, and is placed on our list of the best performing leveraged ETFs in 2022.
The ProShares Ultra Basic Materials (NYSEARCA:UYM) has roughly $47.4 million in assets under management and 53 holdings. The fund has a top ten holdings concentration of 149.40%. One of the fund’s top ten holdings is Linde plc (NYSE:LIN). The stock has surged more than 11% over the past six months, as of December 9.
On October 31, Deutsche Bank analyst David Begleiter raised his price target on Linde plc (NYSE:LIN) to EUR 355 from EUR 350 and maintained a Buy rating on the shares.
As of September 30, Impax Asset Management is the largest shareholder in Linde plc (NYSE:LIN) and has a position worth $816.9 million.
Here is what ClearBridge Investments had to say about Linde plc (NYSE:LIN) in its third-quarter 2022 investor letter:
“Seeing better opportunities elsewhere in the materials sector, we exited our position in Ecolab and added to copper producer Freeport-McMoRan (FCX), which supplies a much-needed resource for the energy transition, and specialty chemical company Linde plc (NYSE:LIN), which has historically held onto pricing gains it has achieved following increases in energy costs. We think this pricing power should protect profitability during the acute inflationary phase and potentially lead to margin expansion when cost pressures abate. Linde also continues to be well-positioned on hydrogen and carbon capture with contract-backed project capex likely accelerating in the medium term as the recently passed Inflation Reduction Act rolls out.”
In addition to Johnson & Johnson (NYSE:JNJ), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP), Linde plc (NYSE:LIN) is also a stock that is popular among elite money managers.
9. Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE)
Leverage: 3x
YTD Return as of December 9: -16.92%
The Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) uses derivatives, such as futures, or other funds to invest in stocks of companies operating in the healthcare sector. The fund invests in large-cap stocks and aims to deliver 3 times the daily return of the Health Care Select Sector Index. The fund has declined by 16.92% year to date, as of December 9, and has outperformed the S&P 500 by roughly 2%. The Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) is one of the best performing leveraged ETFs in 2022.
The Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) has $228.65 million in assets under management and an expense ratio of 0.96%. The fund has a trailing twelve-month yield of 0.27% and pays out dividends on a quarterly basis. The fund has 68 holdings and a top ten holdings concentration of 74.17%.
One of the top holdings of the Direxion Daily Healthcare Bull 3X Shares (NYSEARCA:CURE) is Thermo Fisher Scientific Inc. (NYSE:TMO). This December, RBC Capital analyst Conor McNamara started coverage of Thermo Fisher Scientific Inc. (NYSE:TMO) with an Outperform rating and a $661 price target. As of December 9, the stock has returned 10% to investors over the past six months.
As of September 30, Ken Fisher’s Fisher Asset Management is the dominant investor in Thermo Fisher Scientific Inc. (NYSE:TMO) and has a position worth $1.16 billion in the company.
Here is what Aristotle Atlantic Partners, LLC had to say about Thermo Fisher Scientific Inc. (NYSE:TMO) in its third-quarter 2022 investor letter:
“Thermo Fisher Scientific Inc. (NYSE:TMO) is considered one of the world’s leaders in serving science. The company makes and distributes analytical instruments, scientific equipment, consumables and other laboratory supplies. Thermo Fisher Scientific operates in four segments: Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics and Laboratory Product and Biopharma Services. We see Thermo Fisher Scientific as one of the leading management teams in our coverage both through solid execution and savvy Mergers & Acquisitions (M&A). The company is a diversified provider of research and discovery instruments, tools, consumables, and services, and offers a broad-based play on the increased Research & Development (R&D) spend from the biopharma industry. Thermo Fisher Scientific continues to see organic growth in the high single digits with acquisitions increasing their overall portfolio composition and gaining market share.”
8. Direxion Daily Utilities Bull 3X Shares (NYSEARCA:UTSL)
Leverage: 3x
YTD Return as of December 9: -13.87%
The Direxion Daily Utilities Bull 3X Shares (NYSE:UTSL) has an expense ratio of 0.96% and a yield of 1.73%. The ETF is designed to deliver 3x the daily returns of the Utilities Select Sector Index. The fund makes use of derivatives such as futures and swaps to structure its portfolio and invests in utilities stocks of diverse market caps. As of December 9, the fund has lost 13.87% year to date and has outperformed the S&P 500 by approximately 4%. The fund is one of the best performing leveraged ETFs in 2022.
The Direxion Daily Utilities Bull 3X Shares (NYSE:UTSL) has $22.73 million in assets under management and has 35 holdings. The fund has a top ten holdings concentration of 85.36%. Exelon Corporation (NASDAQ:EXC) is one of the top holdings of the fund. The stock has gained 7% over the past twelve months, as of December 9, and is offering a dividend yield of 3.26%.
On October 3, Credit Suisse analyst Nicholas Campanella started coverage of Exelon Corporation (NASDAQ:EXC) with an Outperform rating and a $43 price target.
As of the close of Q3 2022, GQG Partners is the top shareholder in Exelon Corporation (NASDAQ:EXC) and has disclosed stakes worth $800 million in the company.
7. ProShares Ultra Health Care (NYSEARCA:RXL)
Leverage: 2x
YTD Return as of December 9: -13.05%
The ProShares Ultra Health Care (NYSEARCA:RXL) has fallen by 13.05% year to date, as of December 9, but is one of the best performing leveraged ETFs in 2022 since it has outperformed the S&P 500 by roughly 5%. The fund aims to deliver twice the daily returns of the Dow Jones U.S. Health Care Index by using a full replication technique. The fund populates its portfolio by using derivates, such as swaps. The fund has an expense ratio of 0.95%.
The ProShares Ultra Health Care (NYSEARCA:RXL) has 162 holdings and a top ten holdings concentration of 143.99%. The fund’s assets under management are valued at $109.17 million. One of the fund’s top holdings is AbbVie Inc. (NYSE:ABBV). This November, Credit Suisse analyst Trung Huynh took coverage of AbbVie Inc. (NYSE:ABBV) with an Outperform rating and a $170 price target. The analyst also called it one of his top ideas in the large-cap biopharma space.
As of September 30, Arrowstreet Capital is the largest investor in AbbVie Inc. (NYSE:ABBV) and has a position worth $431.6 million. As of December 9, AbbVie Inc. (NYSE:ABBV) has gained over 20% year to date and is offering a forward dividend yield of 3.63%.
Here is what Baron Funds had to say about AbbVie Inc. (NYSE:ABBV) in its third-quarter 2022 investor letter:
“AbbVie Inc. (NYSE:ABBV) is a drug developer best known for Humira, an immunosuppressant that is the best selling drug of all time. Given outsized key product risk (patent cliff and generic launches beginning in 2023), AbbVie has broadened its pipeline, highlighted by its Allergan acquisition. Shares fell on results that missed consensus and indications that legacy franchises were outperforming newer product launches, calling into question AbbVie’s long-term strategy. With promising assets in the pipeline and its robust cash flow profile, we believe AbbVie will grow well into the future.”
6. ProShares Ultra Utilities (NYSEARCA:UPW)
Leverage: 2x
YTD Return as of December 9: -4.50%
The ProShares Ultra Utilities (NYSEARCA:UPW) aims to deliver 2 times the daily returns of the Dow Jones U.S. Utilities Index via a full replication technique. The fund makes use of derivatives, such as swaps, to structure its portfolio. The fund has an expense ratio of 0.95% and a yield of 1.44%. The fund has $16.15 million in assets under management. The fund has lost 4.50% year to date, as of December 9, and has outperformed the S&P 500 by over 10%, and is therefore ranked among the best performing leveraged ETFs in 2022.
The ProShares Ultra Utilities (NYSEARCA:UPW) has 58 holdings and a top ten holdings concentration of 153.92%. The Southern Company (NYSE:SO) is one of the fund’s top holdings. The Southern Company (NYSE:SO) has gained more than 5% over the past twelve months, as of December 9, and is offering a dividend yield of 3.90%.
This October, Guggenheim analyst Shahriar Pourreza updated his price target on The Southern Company (NYSE:SO) to $69 from $80 and maintained a Buy rating on the shares.
As of the end of Q3 2022, Renaissance Technologies is the largest stockholder in The Southern Company (NYSE:SO) and has a position worth $208.2 million.
For risk-averse investors, leveraged ETFs might not be as suitable as individual stocks that are backed by solid fundamentals and healthy financial resources. Some leading companies with solid fundamentals that investors might be interested in studying include Johnson & Johnson (NYSE:JNJ), Northrop Grumman Corporation (NYSE:NOC), and ConocoPhillips (NYSE:COP).
5. Direxion Daily Aerospace & Defense Bull 3X Shares (NYSEARCA:DFEN)
Leverage: 3x
YTD Return as of December 9: 2.56%
The Direxion Daily Aerospace & Defense Bull 3X Shares (NYSEARCA:DFEN) invests in stocks of companies operating in the industrials, capital goods, aerospace & defense sectors, through derivatives such as futures and swaps. The fund aims to enhance the daily returns of the Dow Jones U.S. Select Aerospace & Defense Index by 3x. The fund has an expense ratio of 0.96% and a yield of 1.99%. As of December 9, the fund has gained 2.56% year to date, outperforming the S&P 500 by roughly 20%, and is placed high on our list of the best performing leveraged ETFs in 2022.
The Direxion Daily Aerospace & Defense Bull 3X Shares (NYSEARCA:DFEN) has $202.56 million in assets under management and has a 40 holdings. The fund has a top ten holdings concentration of 101.06%. One of the fund’s top holdings is Lockheed Martin Corporation (NYSE:LMT). As of December 9, the stock has gone up by 36.64% year to date and is offering a forward dividend yield of 2.48%.
This December, Citi analyst Jason Gursky started coverage of Lockheed Martin Corporation (NYSE:LMT) with a Buy rating and a $546 price target.
As of September 30, GQG Partners is the largest investor in Lockheed Martin Corporation (NYSE:LMT) and has disclosed a stake worth $641 million in the company.
Here is what Vltava Fund had to say about Lockheed Martin Corporation (NYSE:LMT) in its third-quarter 2022 investor letter:
“LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.
LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.
In most NATO countries, which are LMT’s customers, defence outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries. A number of countries have also announced significant increases in defence budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defence…” (Click here to see the full text)
Here is what Vltava Fund has to say about Lockheed Martin Corporation (NYSE:LMT) in its Q3 2022 investor letter:
“LMT is one of the world’s largest aerospace and defence companies. The war in Ukraine has reminded investors and the wider public just how important these companies are. The aerospace and defence industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments. Their main counterparty is the US government, a key customer in what is known as a monopsonist position. This is a rather unusual situation, but one that is very advantageous for companies such as LMT.
LMT has a strong and long-term sustainable competitive advantage ensuing from the fact that its products are developed and manufactured at an extremely high level of technology and complexity, its development and contract cycles are measured in decades, and the costs for the government to switch to alternative suppliers are high. Moreover, part of the production is classified as secret, which further takes the wind out of the sails of potential competitors. This results in a very high return on capital and admittedly a slowly but steadily growing business.
In most NATO countries, which are LMT’s customers, defence outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries. A number of countries have also announced significant increases in defence budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defence…” (Click here to see the full text)
4. Direxion Daily Metals & Mining Bull 2X Shares (NYSEARCA:MNM)
Leverage: 2x
YTD Return as of December 9: 10.27%
The Direxion Daily Metal Miners Bull 2X Shares (NYSEARCA:MNM) has gained 10.27% year to date, as of December 9, and is one of the best performing leveraged ETFs in 2022. The fund has outperformed the S&P 500 by over 28% so far. The fund is designed to amplify the daily performance of the S&P Metals & Mining Select Industry Index by 2 times. The fund has an expense ratio of 1.07% and $12.39 million in assets under management.
The Direxion Daily Metal Miners Bull 2X Shares (NYSEARCA:MNM) has 38 holdings concentrated in the materials, energy, and industrials segments. The fund has a top ten holdings concentration of 47.87%. Freeport-McMoRan Inc. (NYSE:FCX) is one of the top holdings of the fund. As of December 9, Freeport-McMoRan Inc. (NYSE:FCX) has gained 3% over the past six months and is trading at a PE multiple of 14x.
On November 23, Deutsche Bank analyst Abhi Agarwal raised his price target on Freeport-McMoRan Inc. (NYSE:FCX) to $35 from $30 and reiterated a Hold rating on the shares.
As of September 30, Ken Fisher’s Fisher Asset Management is the largest investor in Freeport-McMoran Inc. (NYSE:FCX) and has disclosed a position worth $1.45 billion in the company.
Here is what ClearBridge Investments had to say about Freeport-McMoRan Inc. (NYSE:FCX) in its third-quarter 2022 investor letter:
“Seeing better opportunities elsewhere in the materials sector, we exited our position in Ecolab and added to copper producer Freeport-McMoRan Inc. (NYSE:FCX), which supplies a much-needed resource for the energy transition, and specialty chemical company Linde (LIN), which has historically held onto pricing gains it has achieved following increases in energy costs. We think this pricing power should protect profitability during the acute inflationary phase and potentially lead to margin expansion when cost pressures abate. We think this pricing power should protect profitability during the acute inflationary phase and potentially lead to margin expansion when cost pressures abate.”
3. Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEARCA:GUSH)
Leverage: 2x
YTD Return as of December 9: 53.19%
The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEARCA:GUSH) invests in stocks of companies operating in the energy, oil & gas, and gas exploration & production sectors. The fund aims to deliver 2x the daily returns of the S&P Oil & Gas Exploration & Production Select Industry Index. As of December 9, the fund has appreciated by 53.19% year to date, outperforming the S&P 500 by more than 70%, and is placed third among the best performing leveraged ETFs in 2022.
The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 2X Shares (NYSEARCA:GUSH) has $784.96 million in assets under management. The fund has 67 holdings and a top ten holdings concentration of 83.29%. One of the fund’s top holdings is Marathon Petroleum Corporation (NYSE:MPC). On November 3, Wells Fargo analyst Roger Read raised his price target on Marathon Petroleum Corporation (NYSE:MPC) to $131 from $116 and reiterated an Overweight rating on the shares.
As of December 9, Marathon Petroleum Corporation (NYSE:MPC) has gone up by 65.96% year to date and is offering a dividend yield of 2.75%. As of September 30, Elliott Management is the top investor in Marathon Petroleum Corporation (NYSE:MPC) and has stakes worth $1.09 billion.
2. ProShares Ultra Oil & Gas (NYSEARCA:DIG)
Leverage: 2x
YTD Return as of December 9: 100.25%
As of December 9, the ProShares Ultra Oil & Gas (NYSEARCA:DIG) has gained 100.25% year to date and is one of the best performing leveraged ETFs in 2022. The fund has outperformed the S&P 500 by over 118%. The fund aims to deliver twice the daily performance of the Dow Jones U.S. Oil & Gas Index and uses a full replication technique. The fund has an expense ratio of 0.95% and $173.36 million in assets under management.
The ProShares Ultra Oil & Gas (NYSEARCA:DIG) has 51 holdings and a top ten holdings concentration of 168.81%. One of the fund’s top holdings is oil giant Exxon Mobil Corporation (NYSE:XOM). As of September 30, GQG Partners is the dominant stockholder in the company and has a position worth $2.95 billion.
This November, Piper Sandler analyst Ryan Todd raised his price target on Exxon Mobil Corporation (NYSE:XOM) to $131 from $113 and maintained an Overweight rating on the shares.
As of December 9, Exxon Mobil Corporation (NYSE:XOM) has returned 65.58% to investors year to date and is trading at a PE multiple of 8x.
Here is what First Eagle Investments had to say about Exxon Mobil Corporation (NYSE:XOM) in its second-quarter 2022 investor letter:
“Integrated oil and gas giant Exxon Mobil performed well in the second quarter as continued high prices for energy products supported the stock. As the largest refiner in the US, the company has benefitted from wide “crack spreads,” or the margin between the cost of crude oil and the petroleum products extracted from it. Exxon continues to invest in refining capacity in the US, which industrywide has been in steady decline since 2019. We are pleased that Exxon has been using its strong cash flows to reduce debt and to return cash to shareholders through dividends and stock repurchases.”
1. Direxion Daily Energy Bull 2X Shares (NYSEARCA:ERX)
Leverage: 2x
YTD Return as of December 9: 103.58%
The Direxion Daily Energy Bull 2X Shares (NYSEARCA:ERX) aims to deliver 2 times the daily returns of the Energy Select Sector Index. The fund invests in energy stocks through derivatives such as futures and swaps. As of December 9, the fund has gained 103.58% year to date and is among the best performing leveraged ETFs in 2022. The fund has outperformed the S&P 500 by over 120% so far this year. The fund has an expense ratio of 0.95% and a yield of 2.82%. The fund pays out dividends on a quarterly basis.
The Direxion Daily Energy Bull 2X Shares (NYSEARCA:ERX) has 30 holdings and a top ten holdings concentration of 90.65%. The fund has $559.31 million in assets under management. One of the fund’s top ten holdings is Chevron Corporation (NYSE:CVX). As of December 9, Chevron Corporation (NYSE:CVX) has gained 42.05% year to date and is offering a dividend yield of 3.35%.
This November, Piper Sandler analyst Ryan Todd raised his price target on Chevron Corporation (NYSE:CVX) to $206 from $186 and maintained an Overweight rating on the shares.
As of September 30, Warren Buffett’s Berkshire Hathaway is the dominant shareholder in Chevron Corporation (NYSE:CVX) and has stakes worth $23.75 billion in the company.
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Disclosure: None. 10 Best Performing Leveraged ETFs in 2022 is originally published on Insider Monkey.
