SPUU and UPRO have the lowest fees and SSO and SPXL have the most liquidity Investors looking to diversify their holdings often turn to exc...
SPUU and UPRO have the lowest fees and SSO and SPXL have the most liquidity
Leveraged ETFs comprise a small fraction of available ETFs—and with good reason. They are highly complex investment vehicles with a high-risk, high-cost structure that makes them suitable only for experienced investors who have above-average risk tolerance. Leveraged ETFs often employ derivatives and debt in an effort to achieve 2x or 3x the daily performance of the S&P 500. The risk is that these ETFs also amplify losses when the S&P 500 declines. As a result, leveraged ETFs are most often used as short-term trading vehicles to minimize risk, with most investors exiting their positions within a few days or less. They are not meant to be used as part of a long-term, buy-and-hold portfolio, and newer traders with low risk tolerance should avoid these types of funds.
Leveraged ETFs can be riskier investments than non-leveraged ETFs given that they respond to daily movements in the underlying securities they represent, and losses can be amplified during adverse price moves. Furthermore, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you should not expect that they will do so on longer-term returns. For example, a 2x ETF may return 2% on a day when its benchmark rises 1%, but you shouldn't expect it to return 20% in a year when its benchmark rises 10%. For more details, see this SEC alert.
Below, we'll take a look at the best 2X and 3X leveraged ETFs tracking the S&P 500 in terms of lowest fees and most liquidity, excluding inverse ETFs. The best 2X leveraged ETFs are SPUU and SSO.1 The best 3X leveraged ETFs are UPRO and SPXL.2 There is one 3x leveraged ETF that, although it doesn't track the S&P 500, it does seek to trade some of its highest beta stocks at 3x leverage. It is the Direxion Daily S&P 500 High Beta Bull 3x Shares (HIBL).3 There are also other leveraged ETFs that either provide leveraged exposure to a specific sector or utilize a factor strategy. But the four examined below are the only ones that track the broader index, providing the same cap-weighted exposure to all of the companies in the S&P 500. These funds are not ranked based on their returns over the past year since they are all tracking the same index and should have similar returns. They are also not ranked by return performance over the long term since the leverage multiplier of leveraged funds is based on daily returns, as opposed to longer periods of time.
All numbers below are from ETFdb.com as of May 21, 2021, except as where indicated.
ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.
Direxion Daily S&P 500 Bull 2x Shares (SPUU)
Because index-tracking ETFs will follow the performance of the Index, one of, if not the biggest determinant of long-term returns is how much it charges in fees.
Expense Ratio: 0.64%
Performance over 1-Year: 94.3%
Annual Dividend Yield: 6.68%
3-Month Average Daily Volume: 12,575
Assets Under Management: $26.3 million
Inception Date: May 28, 2014
Issuer: Rafferty Asset Management
SPUU seeks daily investment returns, before fees and expenses, of 200% of the performance of the S&P 500 Index. Investors should not expect this fund to provide two times the cumulative return of the S&P 500 for periods greater than a single day. Investors with a low tolerance for risk may want to consider other investments. SPUU holds shares of the iShares Core S&P 500 ETF (IVV) to track the S&P 500 and uses S&P 500 Index swaps to obtain leveraged exposure to the index.
ProShares Ultra S&P 500 (SSO)
Liquidity indicates how easy it will be to trade an ETF, with higher liquidity generally translating to lower trading costs. Trading costs are not a big concern to people who want to hold ETFs long term, but if you’re interested in trading ETFs frequently, then it’s important to look for high-liquidity funds to minimize trading costs.
3-Month Average Daily Volume: 2,336,172
Performance over 1-Year: 93.3%
Expense Ratio: 0.91%
Annual Dividend Yield: 0.14%
Assets Under Management: $4.0 billion
Inception Date: June 21, 2006
Issuer: ProShares
SSO seeks daily investment returns, before fees and expenses, that are two times the daily performance of the S&P 500 Index. The fund's leverage resets on a daily basis, resulting in compounding of returns when held for multiple periods. This ETF is designed for investors with a high level of risk tolerance and a willingness to monitor their holdings on a daily basis. SSO holds shares of the companies that comprise the S&P 500 and uses various swaps to provide leveraged exposure to the index.
ProShares UltraPro S&P 500 (UPRO)
Because index-tracking ETFs will follow the performance of the Index, one of, if not the biggest determinant of long-term returns is how much it charges in fees.
Expense Ratio: 0.93%
Performance over 1-Year: 157.1%
Annual Dividend Yield: 0.06%
3-Month Average Daily Volume: 5,031,589
Assets Under Management: $2.4 billion
Inception Date: June 23, 2009
Issuer: ProShares
UPRO seeks daily investment returns, before fees and expenses, that are three times the return of the S&P 500 index for a single day, as measured from one net asset value (NAV) calculation to the next. The fund's leverage resets on a daily basis, which results in the compounding of returns when held for multiple periods. Holdings of this ETF should be monitored daily and only be used by investors with a high tolerance for risk. UPRO holds shares of the companies that comprise the S&P 500 and uses various S&P 500 index swaps to provide leveraged exposure to the index.
Direxion Daily S&P 500 Bull 3X Shares (SPXL)
Liquidity indicates how easy it will be to trade an ETF, with higher liquidity generally translating to lower trading costs. Trading costs are not a big concern to people who want to hold ETFs long term, but if you’re interested in trading ETFs frequently, then it’s important to look for high-liquidity funds to minimize trading costs.
3-Month Average Daily Volume: 7,159,723
Performance over 1-Year: 156.3%
Expense Ratio: 1.01%
Annual Dividend Yield: 0.17%
Assets Under Management: $2.2 billion
Inception Date: Nov. 5, 2008
Issuer: Rafferty Asset Management
SPXL seeks daily investment returns, before fees and expenses, of 300% of the performance of the S&P 500 Index. Investors should not expect the fund to provide three times the S&P 500's cumulative return for periods greater than one day. This ETF should be avoided by investors with a low tolerance for risk. SPXL holds shares of IVV to track the S&P 500 and uses S&P 500 Index swaps to obtain leveraged exposure to the index.
