All also use leverage to juice their returns. (Photo:Shutterstock)

(Bloomberg) –Being big isn't everything in the $4 trillionmarket for exchange-traded products (ETPs). Smaller managers areruling the roost this year.

Eight of the 10 best-returning ETPs in 2019 have less than $100million in assets, and none of them is run by a mega-manager likeVanguard Group or BlackRock Inc., according to data compiled byBloomberg.

But those aren't the only things they have in common: All alsouse leverage to juice their returns.

Successful minnows include funds that focus on 2019's obviousoutperformers like homebuilders and industrials, alongside someless talked-about winners, such as Russian stocks.

These niche products — run by the likes of Direxion Investmentsand ProShare Advisors — have an enthusiastic following amongtraders who use leveraged ETPs to make short-term bets.

Many of these products “tend to be not particularly massive inassets under management because they cater to a specific audience,someone willing to assume much more aggressive trading dynamics,”said Ryan Giannotto, director of research at GraniteShares Inc. “Alot of these ideas are used to tap into specific strategies.”

The Direxion Daily Russia Bull 3x Shares, which looks to deliver300% of the daily returns of the Market Vectors Russia Index, hassurged close to 80% this year.

Two traditional ETFs tracking Russian stocks have also gained:the iShares MSCI Russia Capped ETF, or ERUS, and the VanEck VectorsRussia ETF, which trades under RSX, have each risen more than 25%in 2019.

Some of that advance is due to the nation's strong economicfundamentals despite the imposition of U.S. sanctions, according toChris Gaffney, president of world markets at TIAA Bank. “If we seesanctions ease back at all, you can see that Russian economy reallydo well,” he said in an interview at Bloomberg's New Yorkheadquarters.

But even as leveraged funds lead the pack, some largeinstitutional players have pushed back against the use ofnon-traditional ETF strategies due to the risks involved withtrading them. Since they're designed to deliver multiples of theunderlying securities and indexes' performance, they can lose valuequickly during market fluctuations.

Credit Suisse Group AG, for instance, shuttered anexchange-traded note last year after the product lost 90% of itsvalue following a volatility spike. Vanguardsubsequently banned clients from making newtrades of leveraged and inverse investments on its brokerageplatform.

“The issue is, are they attracting people over there who don'tknow what they're doing?” said Bloomberg Intelligence analyst EricBalchunas. “XIV showed, yeah, there's probably some cases ofthat.”

Invesco Ltd.'s solar fund, ticker TAN, is leading gains amongunleveraged funds, returning almost 50% since Dec. 31, while theRenaissance IPO ETF added more than 30%.

Yet “timing is everything with these,” said Balchunas. “Iwouldn't be surprised if TAN finishes negative this year.”

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