Most investors who own ETFs — including Warren Buffett — prudently hold S&P 500 index funds. But thrill-seekers looking for bigger returns can find them with ETFs, too.
Ten ETFs are up 100% or much more this year, including T-Rex 2X Long Nvidia Daily Target ETF, GraniteShares 2x Long NVDA Daily ETF and Direxion Daily FTSE China Bull 3X Shares, says TMX Vetta Fi.
Doubling your money anytime is welcome. But it's especially impressive in a year where the most-popular ETF, the $584 billion-in-assets SPDR S&P 500 ETF Trust is up roughly 20%. Getting these massive returns, though, required straying from the beaten-path into more aggressive and risky plays. These best use borrowed money to enhance returns by making highly concentrated bets.
"Every year the top- and bottom-performing ETFs include those using leverage and those shorting investments," said Todd Rosenbluth, head of research at TMX Vetta FI. "Such approaches allow investors to take on above-average risk in an efficient manner."
Doubling-Down On Nvidia
There's always a winning ETF any given year. But what's different now is that highly focused bets on single stocks are dominating the top ETFs.
"While industry and sector ETFs used to dominate these lists they are now joined by single stock ETFs," Rosenbluth said. "For most investors these are counterintuitive as they provide no diversification benefits found in an ETF."
With its shares up more than 167% this year, Nvidia is one of the top stocks in the S&P 500. Investors see nearly boundless demand for the company's chips for use in AI. Analysts think the company's profit will soar nearly 300% in 2024 and jump another 119% next year.
So, it's not hard to imagine that amplifying that winning bet would have paid off handsomely. And it has. The $589 million-in-assets T-Rex 2X Long Nvidia Daily Target uses borrowed money to goose its bet on Nvidia. Shares returned 369% this year as a result — more than any other ETF this year.
And it's not alone. Four of the top 10 ETFs this year are all leveraged bets on Nvidia — including all of the top three.
Focusing On Other Hot Bets
ETFs that put leveraged bets on Nvidia are certainly the standouts. But that's not the only high-conviction investment paying off.
A surge in China stocks — powered by the Chinese government's vows to stimulate the economy — has fueled ETFs tied to the region. The iShares China Large-Cap ETF, a $9.1 billion-in-assets fund that owns Chinese companies, returned roughly 40% this year, says Morningstar Direct. That's not bad. But leverage only boosts that gain further. The Direxion Daily FTSE China Bull 3X Shares returned more than 180% this year.
Meanwhile, off-the-charts demand for AI chips is pushing the semiconductor industry higher. The $24.8 billion-in-assets VanEck Semiconductor ETF is the top-performing major sector ETF this year. It has returned roughly 44%. And again, applying leverage only ups the gains this year. ProShares Ultra Semiconductors returned 132%.
Beware The Risks
Don't let these huge ETF gains blind you to the risks, though. Leveraged ETFs are designed to be used for tactical short-term bets, not to be long-term positions.
It's also easy to celebrate huge bets on stocks when they're going up. But remember the leverage will hurt when the stocks fall. "Winning stocks do not often repeat year after year. Moderna was a market darling in 2021 thanks to its Covid-19 vaccine. However, it is one of the worst performing stocks in the S&P 500 this year," Rosenbluth says. It's important to keep your S&P 500 plays, too, even if they might seem boring in comparison.
"Leveraged ETFs are like a baseball player seeking out home runs and often striking out," Rosenbluth says. "It's OK if you have one of those players in your lineup but make sure you have some players that hit singles and doubles, too. It will increase your chances of winning over time."
Top-Performing ETFs This Year
| Name | Symbol | YTD Return | Assets ($ billions) |
|---|---|---|---|
| T-Rex 2X Long NVIDIA Daily Target | NVDX | 369.7% | $0.6 |
| GraniteShares 2x Long NVDA Daily | NVDL | 328.5% | 4.9 |
| Direxion Daily NVDA Bull 2X Shares | NVDU | 274.6% | 0.6 |
| Direxion Daily FTSE China Bull 3X Shares | YINN | 182.1% | 2.6 |
| ProShares Ultra Semiconductors | USD | 132.4% | 1.2 |
| GraniteShares 2x Long META Daily | FBL | 119.2% | 0.1 |
| ProShares Ultra FTSE China 50 | XPP | 113.3% | 0.0 |
| GraniteShares 2x Long BABA Daily | BABX | 105.0% | 0.0 |
| Direxion Daily CSI 300 China A Share Bull 2x Shares | CHAU | 102.2% | 0.0 |
| YieldMax NVDA Option Income Strategy | NVDY | 100.6% | 1.1 |
