The biggest benefit of investing in TQQQ versus other Leveraged ETFs is that fund managers have been fairly successful in achieving stated goals since the product launched. However, instead of tracking the S&P 500 as SPXL does, TQQQ tracks the Nasdaq 100. As with SPXL, TQQQ attempts to triple the returns of its underlying index. ProShares UltraPro QQQ (TQQQ) is one of the largest and most heavily traded Leveraged ETFs available today. SPXS attempts to achieve (-300 percent) of the movement of the S&P 500. The Direxion Daily S&P 500 Bear 3X Shares (SPXS) has an equal but opposite goal as compared to SPXL. A Note about SPXSĪs with many Leveraged ETFs, Direxion offers both a Bull and a Bear version of its S&P 500 3X Share Leveraged ETF. As a Leveraged ETF, SPXL requires quite a bit more management, which is reflected in the expense ratio of 1.01 percent. SPXL Expense RatioĪs previously mentioned, the expense ratios for ETFs tend to be quite low, averaging around 0.44 percent. In considering whether an investment in SPXL is right for you, it essentially boils down to your level of risk tolerance, as well as your ability to recover from principal losses. With that said, many of the drops were followed by substantial gains, so savvy investors who timed the market just right were able to profit. As a result, it is far more difficult to meet fund objectives.ĭirexion has published a supplement to SPXL’s prospectus noting that due to the recent market disruptions caused by the COVID-19 pandemic, it is possible – and probable – that SPXL will not meet its investment goals for one or more single-day periods. The current volatility of the market and the substantial one-day drops seen in March 2020 make it hard for the fund to sell securities and/or obtain short exposure to securities. Given current market conditions, Leveraged ETFs designed to double or triple underlying index returns are high-risk.
Fund managers note that these returns cannot be relied upon in any way for periods longer than a day. Its stated goal is intended to be measured in single-day increments. SPXL is very clear in setting investors’ expectations. These figures are calculated before fees and expenses are considered. In other words, for every one percent increase in the S&P 500, this fund attempts to generate three percent returns. What is SPXL?ĭirexion Daily S&P 500 Bull 3X Shares (SPXL) is a Leveraged ETF with a stated goal of achieving daily results of 300 percent of the S&P 500 index. At best, this group of products is tricky, so it is best attempted by experienced investors. Leveraged ETFs work to multiply underlying index gains, but if the underlying index drops, the fund’s losses are doubled or tripled, as well. The potential for enhanced gains is appealing to prospective investors, but it’s critical to remember that the possibility of greater rewards comes with greater risk. Such products are referred to as Leveraged ETFs. This is achieved by investing in debt and financial derivatives. Instead of attempting to mirror gains and losses of the underlying index, they seek to amplify gains by two or three times – occasionally more. Leveraged ETFs are traded the same way as their standard peers, but they have more complex goals. They strive to match gains on a one to one basis. Many ETFs take a relatively simple approach to tracking the underlying index.
That may not be important in a relatively calm market, but in volatile times instant trades can mean stopping losses sooner. Mutual funds, on the other hand, only trade once per day after the market closes at 4pm. The second big advantage that ETFs have over mutual funds is the fact that shares trade throughout the day. That results in substantially lower fees as compared to mutual funds. ETF fans appreciate these funds, because they don’t require much active management. One measure of an ETF’s success is how successful it is in achieving that goal. The collection of assets is typically designed to track an underlying index, such as the S&P 500. Each investor owns shares in the fund, and shares may increase or decrease in value as the market moves. They operate much like mutual funds, in that a collection of investors pool their resources to buy a basket of assets. SPXL vs TQQQ: Exchange-Traded Funds (ETFs) offer a fascinating opportunity to mix some of the biggest advantages of mutual funds with the most important benefits of standard equities.
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