Which Leveraged ETFs Track the Banking Sector?

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) of the daily 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 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 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 2023 include Berkshire Hathaway, JPMorgan Chase, and Visa.

Direxion Daily Financial Bull 3x Shares (FAS)

The Direxion Daily Financial Bull 3x (FAS) fund is designed to have daily investment results equal to 300% of the performance of the Russell 1000 Financial Services Index. The fund creates long positions by investing at least 80% 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% of decreases in the performance of the Russell 1000 Financial Services Index. This fund creates short positions by investing at least 80% 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.

The Bottom Line

A leveraged ETF is a basket of securities that uses leverage to double or even triple its returns. There are several leveraged ETFs that track the banking sector. Those higher returns can also come with higher risks, and retail traders should think carefully when they consider one of these investments.