For investors willing to tolerate high risk in the hope of winning big on intra-day moves, leveraged ETFs use derivatives to amplify gains -- although the risk is that much bigger when stocks fall. They allow investors to make outsized bets on limited trading periods instead of being designed for a long-term buy and hold strategy.
We divided them into double- and triple-leveraged S&P 500 ETFs and used an expense ratio to track the lowest fees as well as three-month daily volume to rank them in terms of liquidity. We excluded inverse ETFs. All numbers are as of Nov. 17, 2022.
For twice-leveraged ETFs, the Direxion's leveraged ETF (SPUU) cost the least, while one from ProShares (SSO) had the highest liquidity. They ranked in reverse order for triple-leveraged ETFs. The high-risk, high-cost structure of leveraged ETFs makes them suitable for experienced investors who have above-average risk tolerance.
- The S&P 500 Index has declined by nearly a fifth the last year, but it has climbed in recent weeks.
- Leveraged ETFs work by using derivatives to produce a multiple of the daily returns of an index.
- The 2× leveraged S&P 500 ETF with the lowest fees is SPUU and SSO has the highest liquidity .
- The 3× leveraged S&P 500 ETF with the lowest fees is UPRO and SPXL had the highest liquidity.
- The one-year total return of the S&P 500 Index is -14.4%, as of Nov. 18, 2022. But investors should remember that these ETFs are not designed to mimic long-term returns.
Lowest Fees (Double-Leverage): Direxion Daily S&P 500 Bull 2× Shares (SPUU)
- Performance Over One Year: -32.7%
- Expense Ratio: 0.63%
- Annual Dividend Yield: 5.30%
- Three-Month Average Daily Volume: 58,597
- Assets Under Management: $52.2 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 shouldn't 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 various swaps to obtain leveraged exposure to the index.
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.
Highest Liquidity (2x Leverage): ProShares Ultra S&P 500 (SSO)
- Performance Over One-Year: -33.0%
- Expense Ratio: 0.89%
- Annual Dividend Yield: 0.17%
- Three-Month Average Daily Volume: 6,458,386
- Assets Under Management: $3.0 billion
- Inception Date: June 19, 2006
- Issuer: ProShares
SSO seeks daily investment returns, before fees and expenses, that are twice the daily performance of the S&P 500 Index. The fund’s leverage resets daily, resulting in compounding of returns when held for multiple periods. This ETF is designed for investors who can tolerate risk 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.
Leveraged ETFs can be riskier investments than non-leveraged ETFs, given that they respond to daily movements in the underlying securities that they represent, and losses can be amplified during price declines. Furthermore, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you shouldn't expect that they will do so on longer-term returns. For example, a 2× 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 U.S. Securities and Exchange Commission (SEC) alert.
Lowest Fees (3x Leverage): ProShares UltraPro S&P 500 (UPRO)
- Performance Over One-Year: -50.2%
- Expense Ratio: 0.91%
- Annual Dividend Yield: 0.04%
- Three-Month Average Daily Volume: 13,867,516
- Assets Under Management: $2.3 billion
- Inception Date: June 25, 2009
- Issuer: ProShares
UPRO seeks daily investment returns, before fees and expenses, that are triple 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 used only by investors with a high tolerance for risk. UPRO holds shares of the companies that comprise the S&P 500 and uses various swaps to provide leveraged exposure to the index.
Highest Liquidity (3x Leverage): Direxion Daily S&P 500 Bull 3x Shares (SPXL)
- Performance Over One-Year: -49.9%
- Expense Ratio: 0.97%
- Annual Dividend Yield: 0.12%
- Three-Month Average Daily Volume: 14,277,112
- Assets Under Management: $2.7 billion
- Inception Date: Nov. 5, 2008
- Issuer: Rafferty Asset Management
SPXL targets daily investment returns of 300% of those of the S&P 500 Index. Leverage for SPXL resets daily, so compounding of returns is a concern for investors holding the fund for longer than a single day. It is designed for sophisticated investors with a high risk tolerance. SPXL holds shares of companies in the S&P 500 Index and uses swaps to provide leveraged exposure.
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