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S&P Reclaims 3,000 Mark: Go Long With These ETFs

Wall Street is rallying this quarter with the S&P 500 reclaiming its 3,000 level. This is especially thanks to optimism surrounding potential coronavirus vaccines and recovering economic activity due to reopening of some states. All the 50 states have lifted restrictions put in place to combat the coronavirus outbreak.

The new candidates such as Novavax NVAX and Merck MRK have joined the race for a coronavirus vaccine. The former has started the phase 1 clinical trial of a vaccine named NVX-CoV2373 and has enrolled the trial’s first participants, with preliminary results slated in July. Meanwhile, Merck announced the development of two vaccines and one antiviral treatment. The drug maker struck a deal to buy Vienna-based vaccine maker Themis Bioscience to accelerate the development of a COVID-19 vaccine and would collaborate with research nonprofit IAVI to develop two separate vaccines. It also announced a partnership with privately held Ridgeback Biotherapeutics to develop an experimental oral antiviral drug (read: Coronavirus Vaccine Efforts Continue, Novavax Begins Human Trial).

The large fiscal and monetary stimulus flowing into the global economy has added to the strength. The central bank has plenty of ammunition to rescue the economy from a deep slowdown, indicating a potential recovery in the second half of the year. The Fed would expand existing lending programs or start new ones if required.

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 key differences in them.

PortfolioPlus S&P 500 ETF PPLC

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 $21.4 million in its asset base and trades in a small volume of 13,000 shares a day on average.

ProShares Ultra S&P500 ETF SSO

This is the most popular and liquid ETF in the leveraged space with AUM of $2 billion and average daily volume of around 3.1 million shares. The fund seeks to deliver two times (2x) the return of the index, charging investors 0.90% in annual fees.

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 $21.9 million in AUM and sees reduced volume of about 28,000 shares a day on average (read: 5 International ETFs Beating S&P 500 Past Month).

ProShares UltraPro S&P500 ETF UPRO

This fund provides three times (3x) exposure to the index with an expense ratio of 0.92%. Average trading volume is solid with nearly 10.1 million shares exchanged per day on average. It has amassed $1.2 billion in its asset base.

Direxion Daily S&P 500 Bull 3x Shares SPXL

Like UPRO, this fund creates 3x long position in the S&P 500 index but charges 3 bps higher in annual fees. It has AUM of $1.3 billion and trades in average daily volume of nearly 16.3 million shares.

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 a high-risk tolerance, and a belief that the trend is the friend in this corner of the investing world.

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Merck Co., Inc. (MRK): Free Stock Analysis Report
Novavax, Inc. (NVAX): Free Stock Analysis Report
Direxion Daily SP 500 Bull 3X Shares (SPXL): ETF Research Reports
ProShares Ultra SP500 (SSO): ETF Research Reports
Direxion Daily SP 500 Bull 2X Shares (SPUU): ETF Research Reports
ProShares UltraPro SP500 (UPRO): ETF Research Reports
PortfolioPlus SP 500 ETF (PPLC): ETF Research Reports
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