S&P 500 Breaks Past 3,000: How to Trade With ETFs
Thanks to Federal Reserve Chairman Jerome Powell’s comment about a near-term rate cut, the S&P 500 hit the 3,000 level for the first time in its history. It takes five years to complete the 1,000-point upward journey. With this, the S&P 500 is up four-fold off the March 2009 lows.
The Fed bolstered the case for easier monetary policy in its congressional testimony despite the trade truce and the strength of employment growth in June. In his remarks, Powell stated the U.S economy is suffering from a bout of uncertainty caused by trade tensions and slower global growth. He pledged to act as needed to support demand.
Additionally, trade optimism has been the biggest catalyst for the stocks this year. The trade truce between the United States and China once again led to investors’ confidence. Further, rising oil price and a slew of mergers & acquisitions added to the strength (read: 5 Unbeatable ETF Strategies for 2nd Half).
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) and Microsoft (MSFT) taking the top two spots, there are a few key differences between them. We have highlighted the differences between them below:
SPDR S&P 500 ETF Trust SPY
Launched in January 1993, SPY is the ultra-popular and oldest U.S. equity ETF with AUM of $276.4 billion. It is the most actively traded fund with average daily volume of around 73.8 million shares 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 $12.8 billion in outflows but has gained 20% so far this year. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: First-Half 2019 ETF Asset Flow Roundup).
iShares Core S&P 500 ETF IVV
With AUM of $179.6 billion, IVV is a lot smaller than SPY and less liquid, trading in average daily volume of 4 billion. This ensures some additional cost in the form of a marginal bid/ask spread. However, the ETF saw inflows of nearly $2.1 billion this year. 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 is up 20% and has a Zacks ETF Rank #2 with a Medium risk outlook.
Vanguard S&P 500 ETF VOO
This ETF is the top asset creator this year, having accumulated nearly $8.9 billion so far. Though it has a similar structure as that of the iShares product, expense ratio is 1 bps cheap and average daily volume is relatively low at 2.9 million shares. VOO has AUM of $117.3 billion and has gained 20.1% this year. It 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.
PortfolioPlus S&P 500 ETF PPLC
This ETF offers 1.25x 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 $24.2 million in its asset base while trades in a moderate volume of 15,000 shares a day on average. The fund has added 26.1% this year.
ProShares Ultra S&P500 ETF SSO
This is the most-popular and liquid ETF in the leveraged space with AUM of $2.5 billion and average daily volume of around 1.5 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.90% in expense ratio. It has surged 40% this year (read: S&P 500 Hits New High to Start 2H: Top-Ranked ETFs to Buy).
Direxion Daily S&P 500 Bull 2x Shares SPUU
While this product also provides 2x exposure to the index, it charges a lower fee of 60 bps. It has a lower level of $10.5 million in its asset base and sees a lower volume of about 9,000 shares a day on average. Additionally, SPUU has returned 42.6% so far this year.
ProShares UltraPro S&P500 ETF UPRO
This fund provides 3x exposure to the index with a higher expense ratio of 0.92%. Average trading volume is solid, exchanging around 4.9 million shares per day on average. It has amassed $1.3 billion in its asset base and soared 62.8% so far this year (see: all the Leveraged Equity ETFs here).
Direxion Daily S&P 500 Bull 3x Shares SPXL
Like UPRO, this fund also creates 3x long position in the S&P 500 Index with expense ratio of 0.95%. It is less popular with AUM of $972.7 million but is liquid with average daily volume of nearly 4.9 million shares. SPXL has gained 63.2% so far this year.
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ProShares UltraPro S&P500 (UPRO): ETF Research Reports
Vanguard S&P 500 ETF (VOO): ETF Research Reports
iShares Core S&P 500 ETF (IVV): ETF Research Reports
Direxion Daily S&P 500 Bull 3X Shares (SPXL): ETF Research Reports
Direxion Daily S&P 500 Bull 2X Shares (SPUU): ETF Research Reports
ProShares Ultra S&P500 (SSO): ETF Research Reports
SPDR S&P 500 ETF (SPY): ETF Research Reports
PortfolioPlus S&P 500 ETF (PPLC): ETF Research Reports
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