Two Leveraged Exchange-Traded S&P 500 Funds and their 12-Year Charts

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Photo: USA News – Money

Investopedia — There are over 1,800 exchange-traded funds (ETFs) available to investors, and so much choice can lead to paralysis when it comes to choosing the right funds for your portfolio.

Leveraged exchange-traded funds comprise a small fraction of the available ETFs and with good reason: These are highly complex investment vehicles with a high-risk, high-cost structure suitable for experienced investors with a high risk tolerance.

Leveraged funds use debt to achieve returns typically two or three times the index they track. For example, a fund with a 2:1 ratio would match each dollar of investor capital with $1 of invested debt (via futures contracts, derivatives), which in theory would double the return, less any management fees and transaction costs. If the index achieves a 1% gain, a 2:1 leveraged fund would return 2%. Of course, the opposite is also true: a 1% loss becomes 2% in a leveraged ETF.

These funds are not generally considered long-term investment options. In fact, most investors limit their exposure to a leveraged fund for a single day or matter of days in order to capitalize on a positive run of the underlying index. It’s important to note that these funds are rebalanced daily and as a result, performance numbers may not closely track long-term performance of the S&P 500.

If you are interested in exposure to a leveraged ETF, here are 4 leveraged S&P indexed funds that are outperforming their peers.

All year-to-date returns are based on the period of January 2016 through November 30, 2016. Funds were selected on a combination of performance and assets under management.

ProShares Ultra S&P 500 ETF (SSO)

  • Issuer: ProShares
  • Assets Under Management: $1.48 billion
  • YTD Performance: 16.81%
  • Expense Ratio: 0.89%

This leveraged fund seeks to double the return of the S&P 500 for a single day (from one NAV calculation to the next) using stocks and derivatives. Since its inception in 2006, the fund has delivered 8.94%. Its one-year, three-year, and five-year returns are 12.62%, 15.05%, and 26.88%, respectively.

Direxion Daily S&P 500 Bull 3x Shares ETF (SPXL)

  • Issuer: Direxion Funds
  • Assets Under Management: $503.4 million
  • YTD Performance: 22.54%
  • Expense Ratio: 0.96%

Direxion offers two S&P 500 leveraged S&P ETFs that seek to produce three times the return of the index on a daily basis. Direxion also has a companion fund, the Bear 3x shares, which aims for returns of 300% of the inverse of the S&P. Since its inception in 2008, the fund has achieved returns of 24.83%, with one-year, three-year, and five-year returns of 15.55%, 19.66%, and 38.42%.


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