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S&P 500 Crosses 3,100: Profit From These ETFs

Sweta Killa

The S&P 500 has been hitting record highs lately and crossed the 3,100 level for the first time in intraday trading on Nov 12 but was unable to maintain the threshold at the close. Easing U.S.-China trade worries and stronger-than-expected earnings were the biggest catalysts for the latest rally.

The United States is expected to sign a phase one trade deal with China later this month. On the Q3 earnings front, of the 447 S&P members that reported results, 72.5% companies beat EPS estimates and 57.9% beat on revenues. The proportion of these companies beating EPS and revenue estimates is in the historical range (read: Top-Ranked ETFs That Crushed the Market in a Month).

The rally was further fueled by rate cuts by the Federal Reserve that have made borrowings cheaper, providing a boost to both investment in new projects and repayment of higher-rate debt. The Fed slashed interest rates once again by 25 basis points last month, representing the third rate cut for the year.

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 that are highlighted 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 $280.6 billion. It is the most actively traded fund with average daily volume of around 68 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 out 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 $16.2 billion in outflows but has gained 25.4% so far. It has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Risk-On Sentiments Are Back: ETFs to Play).

iShares Core S&P 500 ETF IVV

With AUM of $194.2 billion, IVV is a lot smaller than SPY and less liquid, trading in average daily volume of 3.8 billion. This ensures some additional cost in the form of a marginal bid/ask spread. However, the ETF saw inflows of nearly $9.6 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 25.3% and has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard S&P 500 ETF VOO

This ETF has accumulated nearly $11.1 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 2.7 million shares. VOO has AUM of $123.7 billion and has gained 25.4% this year. It has a Zacks ETF Rank #2 with a Medium risk outlook (read: ETF Asset Report of Last Week: U.S. Stocks a Hit).

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

This ETF offers 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 $25.5 million in its asset base while trades in a moderate volume of 7,000 shares a day on average. The fund has added 32.9% this year.

ProShares Ultra S&P500 ETF SSO

This is the most-popular and liquid ETF in the leveraged space with AUM of $2.6 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 49.8% this year (read: S&P 500 ETFs & Stocks to Buy on a Likely Great Rotation).

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 $11.2 million in its asset base and sees a lower volume of about 8,000 shares a day on average. Additionally, SPUU has returned 52.7% 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 3.9 million shares per day on average. It has amassed $1.3 billion in its asset base and has soared 77.8% 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 an expense ratio of 0.95%. It is less popular with AUM of $980.9 million but is liquid with average daily volume of nearly 4.1 million shares. SPXL has gained 78.2% so far this year.

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