Wall Street has enjoyed a huge rally this year, with the S&P 500 logging in gains of more than 25% so far. In fact, the benchmark is on track to register its best performance since 2013 and the third-strongest annual gain since the start of the century.
The bullish trends will likely continue heading into the New Year powered by the Fed’s accommodative interest-rate policy and a resilient domestic economy. Additionally, the prospect of a U.S.-China trade deal will further drive stocks higher. As such, most analysts have provided a strong outlook for the S&P 500 in 2020 (read: 10 Best Performing Stocks of S&P 500 ETF).
Canaccord Genuity equity strategist has provided the most bullish forecast for S&P 500, expecting the index to increase 9.7% to 3,4440 by 2020 end. Sam Stovall, the chief investment strategist at CFRA Research, expects the index to rise 9.5% to 3,435 next year and Credit Suisse expects the S&P 500 to move up by 9.2% to 3,425. J.P. Morgan has set the 2020 price target at 3,400, implying an 8% gain. It expects most of the upside to be realized before the U.S. presidential election in November 2020. Per the analyst, the election is generally good for stocks with the S&P 500 rising 12%, on average, through the prior year with a hit rate of 90%.
Stovall also points out that the S&P 500 has advanced in 78% of presidential election years since World War II, recording an average return of 6.8%. During the six years in which a first-term Republican president was seeking re-election, the S&P 500 was up 100% of the time, with a gain of 6.6%, on average.
How to Tap?
Against such a bullish backdrop, investors seeking to participate in the S&P 500 rally could consider ETFs that replicate the index. While these funds look similar in terms of the holdings’ break up, with Apple (AAPL - Free Report) and Microsoft (MSFT - Free Report) taking the top two spots, there are a few key differences between them that are highlighted below.
SPDR S&P 500 ETF Trust (SPY - Free Report)
This is the ultra-popular and oldest U.S. equity ETF with AUM of $292 billion. It is the most actively traded fund with average daily volume of around 64.3 million shares and 0.09% in expense ratio. SPY has gained 27.2% in the year-to-date timeframe and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Tax Loss Harvesting & Capital Gains: What ETF Investors Should Know).
iShares Core S&P 500 ETF (IVV - Free Report)
With AUM of $197.7 billion, IVV trades in average daily volume of 3.7 billion and is one of the low-cost choices in the space, charging just 4 bps in annual fees. IVV is up 27.2% so far this year and has a Zacks ETF Rank #2 with a Medium risk outlook.
Vanguard S&P 500 ETF (VOO - Free Report)
This ETF charges investors 3 bps in annual fees. It has amassed $126.6 billion in its asset base and trades in average daily volume of 2.5 million shares. VOO has gained 27.3% this year and has a Zacks ETF Rank #2 with a Medium risk outlook (read: The Race to Zero: What ETF Investors Need to Know).
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, futures 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.
PortfolioPlus S&P 500 ETF (PPLC - Free Report)
This ETF offers 1.25x exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 36 bps in annual fees. It has accumulated $26.1 million in its asset base while trades in a moderate volume of 6,000 shares a day on average. The fund has added 35.4% 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 $2.7 billion and average daily volume of around 1.4 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.90% in expense ratio. It has surged 53.8% this year (read: Leveraged ETFs That Are Up 25% Plus at Halfway Q4).
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 $11.6 million in its asset base and sees a lesser volume of about 8,000 shares a day on average. Additionally, SPUU has returned 56.9% so far this year.
ProShares UltraPro S&P500 ETF (UPRO - Free Report)
This fund provides 3x exposure to the index with a higher expense ratio of 0.92%. Average trading volume is solid, exchanging around 3.4 million shares per day on average. It has amassed $1.4 billion in its asset base and has soared 84.8% so far this year (see: all the Leveraged Equity ETFs here).
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 an expense ratio of 0.95%. It is less popular with AUM of $992.3 million but is liquid with average daily volume of nearly 3.7 million shares. SPXL has gained 85.4% so far this year.
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