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S&P 500 on Track for Longest Bull Run: How to Trade With ETFs
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With easing trade war fears and geopolitical tensions, the S&P 500 Index hit all-time high, surpassing the previous peak reached in late January this year. This makes the index on track for the longest bull run in history at 3,453 days on Aug 22 or more than nine years (read: High Beta, Momentum ETFs & Stocks to Trade in a Market Rally).
The latest rally came on the back of surging corporate profits, booming economic growth and hopes that the United States and China could resolve their trade dispute. Notably, the U.S. economy has been on a solid growth path with GDP growth expanding 4.1% annually in second quarter, representing the fastest pace of growth in nearly four years.
The historic tax cuts, infrastructure investment, higher government spending, deregulation, rising wages, record unemployment, rising consumer confidence and higher spending is fueling huge growth. Per Trump, “the United States is on track to hit the highest annual growth rate in over 13 years.” A rising rate scenario also signals strengthening of economy, which is spurring growth in the stock market.
The wave of mergers and acquisitions also adds to the strength. Additionally, the global economy continues to expand at a steady pace despite turmoil in some emerging markets like Turkey and Venezuela (read: 4 Sector ETFs to Tap at New Highs).
Against such a bullish backdrop, investors seeking to participate in the S&P 500 Index’s rally could consider ETFs that replicate the index. While these funds look similar in terms of the holdings breakdown with Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) taking the top two spots, there are few key differences between them. We have highlighted the differences below:
Launched in January 1993, SPY is the ultra-popular and the oldest U.S. equity ETF with AUM of $272.8 billion. It is the most actively traded fund with average daily volume of around 81.1 billion and 0.09% in expense ratio. The fund is structured as a Unit Investment Trust (UIT) with State Street serving as the trustee. It is therefore not allowed to reinvest dividends paid by underlying holdings but must hold them in cash until they are scheduled to be distributed to SPY shareholders. Additionally, SPY does not lend out securities from its portfolio to earn extra money. With this drawback, SPY is leading the ETF redemptions list this year with nearly $21.1 billion in outflows and has gained 8.2% so far this year. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
With AUM of $157.7 billion, IVV is a lot smaller than SPY and less liquid, trading in average daily volume of 3.8 billion. This ensures some additional cost in the form of a marginal bid/ask spread. However, the ETF is the fifth asset creator this year, having accumulated nearly $5.9 billion. Additionally, it is the low-cost choice in the space, charging just 4 bps in annual fees, less than half of the State Street product. Additionally, the product can lend out shares to earn extra and reinvests dividends in the index until paid out quarterly. IVV has jumped 8.2% this year and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Guide to the 25 Cheapest ETFs).
This ETF saw inflows of about $8.4 billion. Though it has a similar structure and expense ratio as that of the iShares product, average daily volume is relatively low at 2.5 million shares, pushing the bid/ask spread a little higher. VOO is up 8.2% this year and has a Zacks ETF Rank #2 with a Medium risk outlook.
Leveraged Play: A Short-Term Win
Investors willing to take extra risk could go for leveraged ETFs that track the index. These funds create a leveraged (1.25x, 2x or 3x) long position in the underlying index through the use of swaps, options, future contracts and other financial instruments. While these funds provide outsized returns in a short span, they could lead to huge losses compared to traditional funds in fluctuating or seesaw markets (read: S&P 500 to Set New Records: Ride High With These ETFs).
PortfolioPlus S&P 500 ETF
This ETF offers 1.25x exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 37 bps in annual fees. It has accumulated $82.3 million in its asset base while trades in a moderate volume of 3,000 shares a day on average. The fund has added 10% this year.
This is the most popular and liquid ETF in the leveraged space with AUM of $2.6 billion and average daily volume of around 2.2 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.90% in expense ratio. It has gained 12.9% 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 $7.5 million in AUM and sees lower volume of about 8,000 shares a day on average. Additionally, SPUU has returned 14.4% so far this year (see: all the Leveraged Equity ETFs here).
This fund provides 3x exposure to the index with a higher expense ratio of 0.95%. Average trading volume is solid, exchanging more than 4.9 million shares per day on average. It has amassed $1.4 billion in its asset base and is up 16.7% so far this year.
Like UPRO, this fund also creates 3x long position in the S&P 500 Index with same expense ratio. It is less popular with AUM of $920.19 million but is liquid with average daily volume of nearly 4.6 million shares. SPXL has gained 16.6% so far this year.
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S&P 500 on Track for Longest Bull Run: How to Trade With ETFs
With easing trade war fears and geopolitical tensions, the S&P 500 Index hit all-time high, surpassing the previous peak reached in late January this year. This makes the index on track for the longest bull run in history at 3,453 days on Aug 22 or more than nine years (read: High Beta, Momentum ETFs & Stocks to Trade in a Market Rally).
The latest rally came on the back of surging corporate profits, booming economic growth and hopes that the United States and China could resolve their trade dispute. Notably, the U.S. economy has been on a solid growth path with GDP growth expanding 4.1% annually in second quarter, representing the fastest pace of growth in nearly four years.
The historic tax cuts, infrastructure investment, higher government spending, deregulation, rising wages, record unemployment, rising consumer confidence and higher spending is fueling huge growth. Per Trump, “the United States is on track to hit the highest annual growth rate in over 13 years.” A rising rate scenario also signals strengthening of economy, which is spurring growth in the stock market.
The wave of mergers and acquisitions also adds to the strength. Additionally, the global economy continues to expand at a steady pace despite turmoil in some emerging markets like Turkey and Venezuela (read: 4 Sector ETFs to Tap at New Highs).
Against such a bullish backdrop, investors seeking to participate in the S&P 500 Index’s rally could consider ETFs that replicate the index. While these funds look similar in terms of the holdings breakdown with Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) taking the top two spots, there are few key differences between them. We have highlighted the differences below:
SPDR S&P 500 ETF Trust (SPY - Free Report)
Launched in January 1993, SPY is the ultra-popular and the oldest U.S. equity ETF with AUM of $272.8 billion. It is the most actively traded fund with average daily volume of around 81.1 billion and 0.09% in expense ratio. The fund is structured as a Unit Investment Trust (UIT) with State Street serving as the trustee. It is therefore not allowed to reinvest dividends paid by underlying holdings but must hold them in cash until they are scheduled to be distributed to SPY shareholders. Additionally, SPY does not lend out securities from its portfolio to earn extra money. With this drawback, SPY is leading the ETF redemptions list this year with nearly $21.1 billion in outflows and has gained 8.2% so far this year. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.
iShares Core S&P 500 ETF (IVV - Free Report)
With AUM of $157.7 billion, IVV is a lot smaller than SPY and less liquid, trading in average daily volume of 3.8 billion. This ensures some additional cost in the form of a marginal bid/ask spread. However, the ETF is the fifth asset creator this year, having accumulated nearly $5.9 billion. Additionally, it is the low-cost choice in the space, charging just 4 bps in annual fees, less than half of the State Street product. Additionally, the product can lend out shares to earn extra and reinvests dividends in the index until paid out quarterly. IVV has jumped 8.2% this year and has a Zacks ETF Rank #2 with a Medium risk outlook (read: Guide to the 25 Cheapest ETFs).
Vanguard S&P 500 ETF (VOO - Free Report)
This ETF saw inflows of about $8.4 billion. Though it has a similar structure and expense ratio as that of the iShares product, average daily volume is relatively low at 2.5 million shares, pushing the bid/ask spread a little higher. VOO is up 8.2% this year and has a Zacks ETF Rank #2 with a Medium risk outlook.
Leveraged Play: A Short-Term Win
Investors willing to take extra risk could go for leveraged ETFs that track the index. These funds create a leveraged (1.25x, 2x or 3x) long position in the underlying index through the use of swaps, options, future contracts and other financial instruments. While these funds provide outsized returns in a short span, they could lead to huge losses compared to traditional funds in fluctuating or seesaw markets (read: S&P 500 to Set New Records: Ride High With These ETFs).
PortfolioPlus S&P 500 ETF
This ETF offers 1.25x exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 37 bps in annual fees. It has accumulated $82.3 million in its asset base while trades in a moderate volume of 3,000 shares a day on average. The fund has added 10% 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 $2.6 billion and average daily volume of around 2.2 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.90% in expense ratio. It has gained 12.9% 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 $7.5 million in AUM and sees lower volume of about 8,000 shares a day on average. Additionally, SPUU has returned 14.4% so far this year (see: all the Leveraged Equity ETFs here).
ProShares UltraPro S&P500 ETF (UPRO - Free Report)
This fund provides 3x exposure to the index with a higher expense ratio of 0.95%. Average trading volume is solid, exchanging more than 4.9 million shares per day on average. It has amassed $1.4 billion in its asset base and is up 16.7% 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 with same expense ratio. It is less popular with AUM of $920.19 million but is liquid with average daily volume of nearly 4.6 million shares. SPXL has gained 16.6% so far this year.
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 >>