Leveraged investing (or geared investing) is a way to step up your potential gains at the expense of higher risk. In the simplest terms, leveraged ETFs multiply your exposure to a certain stock index (such as the S&P 500).
If the index goes up, your gains are magnified. If it goes down, your losses are magnified.
It's a higher reward, higher risk form of ETF investing.
But leveraged ETFs are also more complicated than they first appear. They're not normally something you hold long-term and, as a result, are best-suited to experienced investors and active traders.
Here's a list of the top 5 leveraged ETFs based on NAV returns (net asset value) over the last 3 years. This list is based on TradingView data from 11 December 20241:
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Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Leveraged ETFs (exchange-traded funds) let you increase your exposure to a certain stock index or sector (such as the S&P 500) without having to increase your capital.
They do this by employing derivative instruments like swaps and futures contracts to leverage your exposure by a certain factor (typically 1.5x to 3x).
For example, say you invest in a leveraged ETF that tracks the S&P 500 index by a factor of 3.
If the S&P 500 goes up 5%, your return is an impressive 15% before fees (5% x 3). If it drops 5%, your return is actually an alarming -15%.
They also have much higher costs than regular ETFs. An expense ratio of around 1% is average for a leveraged ETF, while regular ETFs can be as low as 0.03%.
As we've already mentioned, the key risk of leveraged ETFs is that they will amplify your losses as well as your gains.
Unlike regular ETFs, leveraged ETFs are also not intended as long-term investments and are actually rebalanced every day.
In fact, many leveraged ETFs are designed around targeting a return over a specific period of time, often a single trading day.
Keeping these ETFs for longer than the intended holding period could lead to a lot more volatility and potentially amplify any losses.
Important: The standard brokerage fee displayed is the trade cost for new customers to purchase $1,000 of either Australian or US shares. Where a platform charges different fees for both US and Australian shares we show the lower of the two. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
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