Extending last year’s rally, the Wall Street has been hitting a series of record highs with the S&P 500 breaching the 3.300 level for the first time. The latest rally has been powered by Q4 earnings optimism and the initial U.S.-China trade deal.
Per the terms of the phase-one trade deal signed by both the countries, China has agreed to purchase an additional $200 billion ($52.4 billion worth of energy, $32 billion in agriculture, $37.9 billion in services and $77.7 billion of manufactured products) of U.S. goods and services over the next two years. In return, Washington agreed to cut half the tariffs on $120 billion of Chinese products from 15% to 7.5%. Additionally, approval of a new trade deal between the United States, Mexico and Canada by the Senate supported the stocks (read: Phase-One Trade Deal to Boost These ETF Areas). Additionally, the Fed’s accommodative interest rate policy and a resilient domestic economy have been driving stocks higher. Further, a technology surge is adding to the strength. How to Play? Investors can tap this opportunity by going long on the index. There are a number of leveraged products in the market that offer multiple 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. PortfolioPlus S&P 500 ETF This ETF offers 1.35 times (1.35x) exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 32 bps in annual fees. It has accumulated $27.4 million in its asset base and trades in a small volume of 5,000 shares a day on average. The fund has risen 3.8% so far this year. ProShares Ultra S&P500 ETF ( SSO Quick Quote SSO - Free Report) This is the most popular and liquid ETF in the leveraged space with AUM of $3 billion and average daily volume of around 1.4 million shares. The fund seeks to deliver two times (2x) the return of the index, charging investors 0.90% in annual fees. It has gained 5.5% so far this year (read: Bulls to Drive S&P 500 Higher in 2020: ETFs to Tap). Direxion Daily S&P 500 Bull 2x Shares ( SPUU Quick Quote 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 $12.6 million in AUM and sees reduced volume of about 9,000 shares a day on average. SPUU has returned 5.5% so far this year. ProShares UltraPro S&P500 ETF ( UPRO Quick Quote UPRO - Free Report) This fund provides three times (3x) exposure to the index with an expense ratio of 0.92%. Average trading volume is solid, exchanging nearly 3.3 million shares per day on average. It has amassed $1.6 billion in its asset base and is up 8.3% so far this year (read: S&P 500 Hits New Highs: ETFs Soaring to Start 2020). Direxion Daily S&P 500 Bull 3x Shares ( SPXL Quick Quote SPXL - Free Report) Like UPRO, this fund creates 3x long position in the S&P 500 Index with the same expense ratio. It has AUM of $1.2 billion and trades in average daily volume of nearly 3.7 million shares. SPXL has gained 8.2% in the same timeframe. 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 >>