Comparison and analysis of leveraged ETF performance: SPUU vs. SSO
When choosing ETFs aiming to provide double daily returns compared to the S&P 500 index, investors often face two popular options: Direxion Daily S&P 500 Bull 2X Shares (SPUU) and ProShares Ultra S&P500 ETF (SSO). Both of these funds use leverage to achieve their investment goals, but they differ in several important characteristics that may impact your investment decisions.
Expense ratios and economic efficiency
The first notable difference between SPUU and SSO is the expense ratio. SPUU offers a lower expense ratio of 0.60%, making it more appealing to investors who aim to minimize costs. In contrast, SSO has an expense ratio of 0.91%. Although the difference may seem minor at first glance, in the long run, the lower expenses of SPUU can significantly impact net returns, especially considering that leveraged products often have additional hidden costs.
Assets under management and liquidity
Another crucial factor is assets under management and trading volume. Despite its cost efficiency, SPUU has a smaller asset base, amounting to about $129 million. In contrast, SSO manages assets totaling approximately $4.4 billion. This difference in asset volume leads to better liquidity for SSO and narrower bid-ask spreads, making it more convenient for large trades and active traders.
Average trading volume also highlights this difference: SPUU trades an average of 16,045 shares per day, whereas SSO trades about 3 million shares per day. Higher trading volume in SSO contributes to better order execution and reduced transaction costs.
Performance and long-term metrics
When comparing performance over the past year, SPUU demonstrated a return of 43.25%, slightly higher than SSO's 41%. In the long term, over the past five years, SPUU's annualized return was 22.20%, while SSO's was 20.58%. Over the past ten years, SPUU also outperformed SSO: 20.03% vs. 18.90%. These figures highlight SPUU’s ability to deliver higher returns over extended periods, though with increased risks.
Volatility and risks
It is important to note that both ETFs are leveraged products and therefore more volatile compared to their non-leveraged counterparts. The beta coefficient of SPUU is approximately 2.00, indicating its volatility is twice that of the S&P 500. This means that while SPUU may offer higher returns during market upswings, it may also incur more significant losses during market downturns.
Practical considerations
Investors considering SPUU or SSO should take into account several practical aspects:
- Expense ratio: The lower expense ratio of SPUU makes it more attractive for those looking to cut costs.
- Liquidity and trading volume: SSO, with its larger asset base and trading volume, may be preferable for large traders due to better order execution and narrower spreads.
- Performance and risk: SPUU may offer slightly better returns but comes with increased risks and volatility. Investors should be prepared for potential fluctuations and factor this into their investment decisions.
