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S&P 500 to Scale New Heights in 2018: Bet on These ETFs
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The U.S. stock market is witnessing the second-largest bull run, with the S&P 500 poised for the best year since 2013. The index hit successive milestones of 2,300 in January, 2,400 in May, 2,500 in September and finally 2,600 two days ahead of Thanksgiving Day. With this, it has risen about 16% in the year-to-date time frame (read: S&P 500 Hits 2,500 Mark: How to Trade With ETFs).
The bullish trend is likely to continue as we move ahead into the next year. According to the average forecast from nine market strategists polled by Bloomberg, the S&P 500 index should reach 2,800 by the end of 2018 with some projecting an even bigger increase. Many analysts are also expecting double-digit gains in the index. BMO Capital expects the index to climb 2,950 by the end of 2018 while UBS sees 2,900. Deutsche Bank and Goldman provided a target price of 2,850 while the Credit Suisse target price is 2,875 for 2018.
Prominent Wall Street bull Laszlo Birinyi also lifted his target for the S&P 500 to 2,680-2,700 for the first quarter of 2018.
Strong corporate earnings and improving health of economies around the world have been the major catalysts to the bull run. Additionally, the economy has been on a solid growth path buoyed by an impressive labor market, increase in wages, and higher consumer spending. Americans have an optimistic view on the economy with confidence hitting the highest level in almost 17 years.
Further, a weak dollar, rising oil price, tax reform hopes and holiday optimism are adding to the strength. Moreover, a rising rate scenario signals a strengthening economy, which will fuel further growth in the stock market (read: House Passes Tax Bill: Likely ETF Winners & Losers).
How to Play?
Given this, the S&P 500 will likely see solid trading ahead and investors could easily tap this opportune moment by going long on the index. There are a number of leveraged products in the market that offer multiple (2x or 3x) exposure to the index through the use of swaps, options, future contracts and other financial instruments. Below we highlight those and some of the key differences between each:
Direxion Daily S&P 500 Bull 1.25x Shares
This ETF offers 1.25x exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 25 bps in annual fees. It has accumulated $68.1 million in its asset base while trades in a smaller volume of 4,000 shares a day on average. The product has added 22.3% so far this year.
This is the most popular and liquid ETF in the leveraged space with AUM of $2.1 billion and average daily volume of around 1.2 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.89% in expense ratio. It has gained 36.2% this year.
While this product also provides 2x exposure to the index, it charges a lower fee of 60 bps. It has a lower level of $3.9 million in AUM and sees a lower volume of about 2,000 shares a day on average. Additionally, SPUU has returned 27.6% so far this year (read: S&P 500 to Hit 2800 in 2018? Play These ETFs).
This fund provides 3x exposure to the index with a higher expense ratio of 0.94%. Average trading volume is solid, exchanging more than 1.2 million shares per day on average. It has amassed $1.1 billion in its asset base and is up 57.3% so far this year.
Like UPRO, this fund also creates 3x long position in the S&P 500 index while charges one basis point extra in fees a year. It is less popular with AUM of $712.2 million but slightly more liquid with average daily volume of nearly 1.4 million shares. SPXL has gained 56.7% so far this year.
Barclays iPath Long Extended S&P 500 TR Index ETN
This is an ETN option providing triple leveraged long position in the index. It charges 35 bps in annual fees and is an unpopular an illiquid option with AUM of $2.3 million and average daily volume of under 500 shares. It has added just 4% so far this year (read: ETFs Vs. ETNs: What Investors Need to Know).
UBS ETRACS Monthly Reset 2xLeveraged S&P 500 Total Return ETN
This ETN is linked to the monthly compounded 2x leveraged performance of the S&P 500 Total Return Index. It has AUM of $4.1 million and trades in light volume of under 500 shares a day. Expense ratio comes in at 0.85%.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the trend is the friend in this corner of the investing world.
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S&P 500 to Scale New Heights in 2018: Bet on These ETFs
The U.S. stock market is witnessing the second-largest bull run, with the S&P 500 poised for the best year since 2013. The index hit successive milestones of 2,300 in January, 2,400 in May, 2,500 in September and finally 2,600 two days ahead of Thanksgiving Day. With this, it has risen about 16% in the year-to-date time frame (read: S&P 500 Hits 2,500 Mark: How to Trade With ETFs).
The bullish trend is likely to continue as we move ahead into the next year. According to the average forecast from nine market strategists polled by Bloomberg, the S&P 500 index should reach 2,800 by the end of 2018 with some projecting an even bigger increase. Many analysts are also expecting double-digit gains in the index. BMO Capital expects the index to climb 2,950 by the end of 2018 while UBS sees 2,900. Deutsche Bank and Goldman provided a target price of 2,850 while the Credit Suisse target price is 2,875 for 2018.
Prominent Wall Street bull Laszlo Birinyi also lifted his target for the S&P 500 to 2,680-2,700 for the first quarter of 2018.
Strong corporate earnings and improving health of economies around the world have been the major catalysts to the bull run. Additionally, the economy has been on a solid growth path buoyed by an impressive labor market, increase in wages, and higher consumer spending. Americans have an optimistic view on the economy with confidence hitting the highest level in almost 17 years.
Further, a weak dollar, rising oil price, tax reform hopes and holiday optimism are adding to the strength. Moreover, a rising rate scenario signals a strengthening economy, which will fuel further growth in the stock market (read: House Passes Tax Bill: Likely ETF Winners & Losers).
How to Play?
Given this, the S&P 500 will likely see solid trading ahead and investors could easily tap this opportune moment by going long on the index. There are a number of leveraged products in the market that offer multiple (2x or 3x) exposure to the index through the use of swaps, options, future contracts and other financial instruments. Below we highlight those and some of the key differences between each:
Direxion Daily S&P 500 Bull 1.25x Shares
This ETF offers 1.25x exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 25 bps in annual fees. It has accumulated $68.1 million in its asset base while trades in a smaller volume of 4,000 shares a day on average. The product has added 22.3% so far this year.
ProShares Ultra S&P500 ETF (SSO - Free Report)
This is the most popular and liquid ETF in the leveraged space with AUM of $2.1 billion and average daily volume of around 1.2 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.89% in expense ratio. It has gained 36.2% this year.
Direxion Daily S&P 500 Bull 2x Shares (SPUU - Free Report)
While this product also provides 2x exposure to the index, it charges a lower fee of 60 bps. It has a lower level of $3.9 million in AUM and sees a lower volume of about 2,000 shares a day on average. Additionally, SPUU has returned 27.6% so far this year (read: S&P 500 to Hit 2800 in 2018? Play These ETFs).
ProShares UltraPro S&P500 ETF (UPRO - Free Report)
This fund provides 3x exposure to the index with a higher expense ratio of 0.94%. Average trading volume is solid, exchanging more than 1.2 million shares per day on average. It has amassed $1.1 billion in its asset base and is up 57.3% so far this year.
Direxion Daily S&P 500 Bull 3x Shares (SPXL - Free Report)
Like UPRO, this fund also creates 3x long position in the S&P 500 index while charges one basis point extra in fees a year. It is less popular with AUM of $712.2 million but slightly more liquid with average daily volume of nearly 1.4 million shares. SPXL has gained 56.7% so far this year.
Barclays iPath Long Extended S&P 500 TR Index ETN
This is an ETN option providing triple leveraged long position in the index. It charges 35 bps in annual fees and is an unpopular an illiquid option with AUM of $2.3 million and average daily volume of under 500 shares. It has added just 4% so far this year (read: ETFs Vs. ETNs: What Investors Need to Know).
UBS ETRACS Monthly Reset 2xLeveraged S&P 500 Total Return ETN
This ETN is linked to the monthly compounded 2x leveraged performance of the S&P 500 Total Return Index. It has AUM of $4.1 million and trades in light volume of under 500 shares a day. Expense ratio comes in at 0.85%.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing, when combined with leverage, may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the trend is the friend in this corner of the investing world.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>