Investors looking to diversify their holdings often turn to exchange traded funds (ETFs). These helpful investment vehicles hold a basket of securities and trade like stocks, thus providing a speedy, efficient option for investors looking to balance their portfolios. ETFs are also an excellent way to track the S&P 500 Index, a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P 500 has experienced high levels of volatility this year due to the economic disruption caused by the COVID-19 pandemic and uncertainty related to the U.S. presidential election. Investors seeking to profit from these swings have the option of using a special and particularly risky type of product, called leveraged ETFs, which also track the S&P 500.

Key Takeaways

  •  The S&P 500 Index is a market-cap-weighted index of the 500 largest publicly traded companies in the U.S.
  • The 2X leveraged S&P 500 ETF with the lowest fees is SPUU and the 2X leveraged S&P 500 ETF with the highest liquidity is SSO.
  •  The 3X leveraged S&P 500 ETF with the lowest fees is UPRO and the 3X leveraged S&P 500 ETF with the highest liquidity is SPXL.
  • The one-year total return of the S&P 500 Index is 16.9%, as of November 10, 2020.

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. 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. The list does not include inverse ETFs. All numbers in this story are as of November 10, 2020.

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: 19.1%
  • Annual Dividend Yield: 1.36%
  • 3-Month Average Daily Volume: 13,233
  • Assets Under Management: $19.9 million
  • Inception Date: May 28, 2014
  • Issuer: Direxion

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. 

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: 2,700,027
  • Performance over 1-Year: 18.7%
  • Expense Ratio: 0.90%
  • Annual Dividend Yield: 0.58%
  • Assets Under Management: $2.6 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. 

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: 0.92%
  • Performance over 1-Year: 6.4%
  • Annual Dividend Yield: 0.25%
  • 3-Month Average Daily Volume: 5,969,768
  • Assets Under Management: $1.5 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. 

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: 8,604,706
  • Performance over 1-Year: 5.9%
  • Expense Ratio: 1.02%
  • Annual Dividend Yield: 0.52%
  • Assets Under Management: $1.5 billion
  • Inception Date: November 5, 2008
  • Issuer: Direxion

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. 

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