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Leveraged ETFs to Ride on S&P's New 5,200 Milestone
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In a historic move that signals optimism for the financial markets, the S&P 500 Index closed above 5,200 for the first time ever, following the Fed’s signal to cut interest rates. This will mark the end of the most aggressive Fed hiking cycle and fuel corporate profits.
Investors willing to ride the bull run might consider the ETFs that track the S&P 500 Index. In fact, leveraged ETFs might be a good option as these could see huge gains in a short time frame compared to simple products. These include ProShares Ultra S&P500 ETF (SSO - Free Report) , Direxion Daily S&P 500 Bull 2x Shares (SPUU - Free Report) , ProShares UltraPro S&P500 ETF (UPRO - Free Report) and Direxion Daily S&P 500 Bull 3x Shares (SPXL - Free Report) .
These funds will continue to be investors’ darlings, at least in the near term, provided the sentiments remain bullish.
In the latest meeting, the Fed maintained its interest rates steady in a range of 5.25%-5.50% and signaled three rate cuts this year, citing expanding economic activity and easing but elevated inflation. Following the meeting, futures markets priced in a nearly 75% probability that the first cut would come at the Jun 11-12 meeting, according to the CME Group’s FedWatch gauge (read: S&P 500 Soars to New Highs: 5 Best Stocks YTD).
Lower interest rates generally lead to reduced borrowing costs, helping businesses to expand their operations more easily and resulting in increased profitability. This, in turn, will stimulate economic growth and provide a boost to the stock market.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated,” the Fed said in a statement.
Leveraged ETFs
Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend.
Since most of these ETFs seek to attain their goals on a daily basis, their performances could vary significantly from the performance of their underlying index or benchmark over a longer period compared with a shorter period (such as weeks, months or years) due to their compounding effect (see: all Leveraged Equity ETFs here).
Investors should also note that leveraged ETFs involve more risk than traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.
This is the most popular and liquid ETF in the leveraged space, with AUM of $4.4 billion and an average daily volume of around 3 million shares. The fund seeks to deliver 2X the return of the index, charging investors 0.91% in expense ratio.
While this product also provides 2X exposure to the index, it charges a lower fee of 60 bps. It has a lower level of $271.8 million in AUM and sees a lower volume of about 18,000 shares a day on average (read: Ride the S&P 500 Wave With These ETFs).
This fund provides 3X exposure to the index with a higher expense ratio of 0.92%. The average trading volume is solid, exchanging about 6 million shares per day on average. It has amassed $3.3 billion in its asset base.
Like UPRO, this fund also creates a 3X long position in the S&P 500 Index with an expense ratio of 0.93%. It has AUM of $4 billion and liquid and trades in an average daily volume of nearly 7 million shares.
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Leveraged ETFs to Ride on S&P's New 5,200 Milestone
In a historic move that signals optimism for the financial markets, the S&P 500 Index closed above 5,200 for the first time ever, following the Fed’s signal to cut interest rates. This will mark the end of the most aggressive Fed hiking cycle and fuel corporate profits.
Investors willing to ride the bull run might consider the ETFs that track the S&P 500 Index. In fact, leveraged ETFs might be a good option as these could see huge gains in a short time frame compared to simple products. These include ProShares Ultra S&P500 ETF (SSO - Free Report) , Direxion Daily S&P 500 Bull 2x Shares (SPUU - Free Report) , ProShares UltraPro S&P500 ETF (UPRO - Free Report) and Direxion Daily S&P 500 Bull 3x Shares (SPXL - Free Report) .
These funds will continue to be investors’ darlings, at least in the near term, provided the sentiments remain bullish.
In the latest meeting, the Fed maintained its interest rates steady in a range of 5.25%-5.50% and signaled three rate cuts this year, citing expanding economic activity and easing but elevated inflation. Following the meeting, futures markets priced in a nearly 75% probability that the first cut would come at the Jun 11-12 meeting, according to the CME Group’s FedWatch gauge (read: S&P 500 Soars to New Highs: 5 Best Stocks YTD).
Lower interest rates generally lead to reduced borrowing costs, helping businesses to expand their operations more easily and resulting in increased profitability. This, in turn, will stimulate economic growth and provide a boost to the stock market.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated,” the Fed said in a statement.
Leveraged ETFs
Leveraged ETFs provide multiple exposures (2X or 3X) to the daily performance of the underlying index. These funds employ various investment strategies, such as the use of swaps, futures contracts and other derivative instruments to accomplish their objectives. Due to their compounding effect, investors can enjoy higher returns in a short period, provided the trend remains a friend.
Since most of these ETFs seek to attain their goals on a daily basis, their performances could vary significantly from the performance of their underlying index or benchmark over a longer period compared with a shorter period (such as weeks, months or years) due to their compounding effect (see: all Leveraged Equity ETFs here).
Investors should also note that leveraged ETFs involve more risk than traditional funds. They are often more costly and can be less tax-efficient, as they can see capital gains through the use of swaps and other derivative instruments.
ProShares Ultra S&P500 ETF (SSO - Free Report)
This is the most popular and liquid ETF in the leveraged space, with AUM of $4.4 billion and an average daily volume of around 3 million shares. The fund seeks to deliver 2X the return of the index, charging investors 0.91% in expense ratio.
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 $271.8 million in AUM and sees a lower volume of about 18,000 shares a day on average (read: Ride the S&P 500 Wave With These ETFs).
ProShares UltraPro S&P500 ETF (UPRO - Free Report)
This fund provides 3X exposure to the index with a higher expense ratio of 0.92%. The average trading volume is solid, exchanging about 6 million shares per day on average. It has amassed $3.3 billion in its asset base.
Direxion Daily S&P 500 Bull 3x Shares (SPXL - Free Report)
Like UPRO, this fund also creates a 3X long position in the S&P 500 Index with an expense ratio of 0.93%. It has AUM of $4 billion and liquid and trades in an average daily volume of nearly 7 million shares.