2025 will likely bring a host of unknown variables for investors, including ongoing geopolitical disputes around the world and a rush of new policies and priorities from the US government under Donald Trump’s second administration. On the one hand, defensive plays may attract investors wary of the potential impacts on markets from escalating unrest in the Middle East, an isolationist approach to US economic development, and more.
However, for those with a greater appetite for risk, the widespread uncertainty surrounding the investment landscape in 2025 could offer the potential for big adventures, and perhaps rewards of equal magnitude. In this environment, exchange-traded funds (ETFs) with a specialized focus can allow investors to precisely target a specific portion of the market. However, keep in mind that these funds tend to have more risk than most other ETFs, even in periods of relative market stability.
Extremely strong market exposure with built-in downside protection
Direxion HCM Tactical Enhanced US ETF today
Direxion HCM Tactical Enhanced US ETF
(As of 12/27/2024 at 04:31 PM ET)
- 52 week range
- $25.18
▼
$39.52
- Dividend yield
- 0.79%
- Assets under management
- $449.31 million
Direxion HCM Tactical Enhanced US ETF NYSEARCA: HCMT It is an actively managed fund of funds that uses an unusual approach: HCMT either invests in US stocks with leverage of up to 200% of net assets or takes a non-leveraged approach, relying entirely on cash or cash equivalents. The determination is made based on an investment model prepared by sub-adviser Howard Capital Management that attempts to gauge which of the two approaches may be more beneficial. The HCMT may switch between these two methods each day.
This fund puts an unusual spin on the approach often taken by leveraged ETFs, which can be described as “all the time.” Typical funds with 2x or 3x leverage choose an investment approach and stick to it – investors typically trade in or out of the fund on a daily basis to avoid long-term misperformance as the fund resets.
With HCMT, investors have a fund that can take a very aggressive leveraged approach or a passive defensive strategy, depending on the market. This may make investors more likely to hold their assets here longer than they would with other leveraged funds, although compounding risks may still exist. However, the fund’s approach to managing downside risk is useful – especially since most leveraged funds offer no protection at all.
Focus on Ethereum, with risk management
Bitwise Ethereum ETF Strategy Today
Bitwise Ethereum ETF Strategy
(As of 12/27/2024 at 04:30 PM ET)
- 52 week range
- $28.33
▼
$55.61
Such as HCMT, and Bitwise Ethereum Strategy ETF NYSEARCA: Gold It is designed to fluctuate between a higher risk, more aggressive investment strategy and a much lower risk, more stable investment strategy, depending on the market condition. While HCMT targets stocks and takes a broad approach to looking at the S&P 500 and NASDAQ-100 indices, AETH looks to the cryptocurrency space and, more specifically, to Ethereum.
Although ether is not nearly as ubiquitous as Bitcoin tokens, the Ethereum network remains a favorite among cryptocurrency developers looking to launch apps, NFTs, or tokens using smart contracts. This makes Ethereum a potential hub of activity anytime there are major developments in the cryptocurrency space.
AETH invests entirely in CME Ether futures contracts during periods of market growth. It then switches to a conservative approach based on US Treasuries during recessions or periods of volatility. Similar to HCMT, this rotation strategy means that AETH is trying to take on a high-risk speculative environment and provide some protection against downside risks. Like many other cryptocurrency-based ETFs, AETH does not invest in ether directly – for some, the less direct option of exposure through futures offers an attractive distance from the volatile spot market.
AETH has low assets under management, at less than $11 million as of December 26, 2024. However, the defensive option should appeal to buy-and-hold investors who are less concerned with day trading liquidity.
Take advantage of the booming economy
MicroSectors Travel 3x Leveraged ETN Today
MicroSectors Travel 3x Leveraged ETN
(As of 12/27/2024 at 04:31 PM ET)
- 52 week range
- $24.45
▼
$71.01
- Dividend yield
- 0.00%
- Assets under management
- $9.68 million
MicroSectors Travel 3x Leveraged ETN NYSEARCA:FLYU It provides investors with an interesting way to make a bullish bet during a strong economy. The fund aims for 3x daily exposure to an index of stocks participating in the travel industry. Since consumers are more likely to increase non-business travel expenses when the economy is doing well, this fund gives investors a targeted way to capitalize on periods when customers have more cash in their pockets.
FLYU investors end up paying for leveraged exposure, as the fund has an expense ratio of 0.95%. It also has a very small asset base and trading volumes as of late December 2024, which could pose a problem for investors keen to rotate in and out of the FLYU position daily to accommodate exposure readjustments.
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