The markets were down in 2022, so, naturally, they should be up in 2023, right? Well, not really, but you’d be surprised how many investors actually believe that.
The truth is, nobody, including me, knows whether or not a bull market is on the way for 2023. If someone professes to having a crystal ball in investing, run the other way. I mean, look at the S&P 500 index predictions from most of the major investment banks in 2022 — they were all off the mark.
What investors can focus on is their risk tolerance. Bull market or not, figuring out how much risk you’re able and willing to take is critical when it comes to selecting the right investments.
For those with a high risk tolerance looking to capitalize on an upswing, I have two volatile, yet possibly rewarding equity exchange-traded funds, or ETFs for you to consider today.
The regular Nasdaq-100
A highly popular investment among high-risk investors in recent years was the Nasdaq 100 index, a market-cap weighted index of the 100 largest non-financial sector companies listed on the Nasdaq exchange. The index is highly sensitive to market movements. Why?
Well, around 50% of the index is comprised of technology sector stocks — most, if not all, of which have a large-cap growth style. Thus, the Nasdaq 100 has historically been the more volatile index, capable of strong returns but also deep drawdowns like during the Dot-Com bubble.
For a low-cost way of tracking the Nasdaq 100, consider Horizons NASDAQ 100 Index ETF (TSX:HXQ), which charges a 0.28% expense ratio. The low dividend yield of this ETF also makes it a great tax-efficient pick for a taxable account holding.
The leveraged Nasdaq 100
For more advanced, short-term investors looking to capitalize on daily momentum in a bull market, the BetaPro Nasdaq 100 2x Daily Bull ETF (TSX:HQU) could work as a tactical trading tool. This risky, leveraged ETF aims to deliver twice the daily returns of the S&P 500 index, net of fees.
It’s important to note that the keyword here is daily. If you hold HQU for more than a day, the results can become unpredictable. The two times leverage target is reset daily, so compounding can work against you in a high-volatility, sideways market if you hold the HQU for longer periods. Buyer, beware.
Another reason HQU may not be the best long-term option is its high expense ratio. To achieve its leverage, the ETF uses derivatives, which can be costly. Currently, HQU’s expense ratio is 1.47%, which is significantly higher than that of HXQ. So, remember to proceed with caution and have a plan!
