Capital Inflows To Leveraged And Inverse ETFs Surge

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Investors are increasingly pilling into risky ETFs as the stock market rally shows no signs of slowing down. Capital inflows into leveraged and inverse ETFs have been on a roll ever since the stock market bottomed out from the March crash. The ETFs have raked close to $16.3 billion and on course to surpass the $16.7 billion invested in 2008.

Capital Inflow

The hunt for bigger returns as the overall stock market edges higher has forced many investors to take bold bets that have the potential to generate big gains as well as losses. Risky Leveraged ETFs have become a hit among investors given their ability to offer double or triple daily returns.

Likewise, investors have also turned to inverse ETFs in a bid to profit from inverse or opposed move of stock market indices. In March and April, investors put more than $14 billion into leveraged and inverse ETFs.

Investors have shunned concerns about the impact of a second wave of coronavirus, opting to gain broader exposure to the market through ETFs. With individual stocks pushing stock indices to record highs, so have investors turned to ETFs to diversify their holdings. The S&P 500 is already up by more than 13% this year.

ProShares Ultra QQQ ETF has more than doubled in value over the past six months. The impressive run does not come as a surprise as the ETF triples the daily return of an index that it tracks the Nasdaq 100 stocks. In September alone, investors put nearly $2 billion into the fund reversing several months of outflows. The investors have been rewarded heavily as the NASDAQ 100 has continued to edge higher.

Leveraged ETFs are best suited to be held over the course of a single trading session. If not, the risk of losses pilling is usually high on an index declining. In the past, long-term holders of leveraged ETFs have been burned dramatically. In 2018 investors lost millions after volatility surged.

ETF Rallying amid the Pandemic

The traditional office environment has changed drastically, with most people being pushed to work from home owing to COVID-19. The cloud transition has been accelerated and here to stay with or without the pandemic. Global X Cloud Computing ETF offers the best way to gain exposure to the burgeoning cloud computing segment.

The ETF is packed with three dozen companies specializing in software as a service and infrastructure as a service. While most of the stocks held in the Global X Cloud Computing ETF are pricey, they offer superior long term growth prospects.

The opportunity to invest in gold stocks is one that investors should not take for granted as gold prices look set to continue edging higher. With the condition ripe for higher prices, VanEck Vectors Junior Gold Miners ETFs offer a perfect opportunity to gain exposure to the segment. Many of the ETF stocks have improved their financials and are poised to benefit as gold prices edge higher.

ETFMG Prime Mobile Payments ETF is an ETF for investors looking to gain exposure to digital payments. With e-commerce taking over the retail sector, digital payments have become the new norm for finalizing transactions.

Likewise, payment companies of the likes of PayPal and Square are enjoying booming business. With mobile payments poised to be a top growth trend, ETFMG Payments ETF should act as a smart place to invest.


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