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Bulls to Drive S&P 500 Higher in 2020: ETFs to Tap

Sweta Killa

Wall Street has enjoyed a huge rally this year, with the S&P 500 logging in gains of more than 25% so far. In fact, the benchmark is on track to register its best performance since 2013 and the third-strongest annual gain since the start of the century.

The bullish trends will likely continue heading into the New Year powered by the Fed’s accommodative interest-rate policy and a resilient domestic economy. Additionally, the prospect of a U.S.-China trade deal will further drive stocks higher. As such, most analysts have provided a strong outlook for the S&P 500 in 2020 (read: 10 Best Performing Stocks of S&P 500 ETF).

Canaccord Genuity equity strategist has provided the most bullish forecast for S&P 500, expecting the index to increase 9.7% to 3,4440 by 2020 end. Sam Stovall, the chief investment strategist at CFRA Research, expects the index to rise 9.5% to 3,435 next year and Credit Suisse expects the S&P 500 to move up by 9.2% to 3,425. J.P. Morgan has set the 2020 price target at 3,400, implying an 8% gain. It expects most of the upside to be realized before the U.S. presidential election in November 2020. Per the analyst, the election is generally good for stocks with the S&P 500 rising 12%, on average, through the prior year with a hit rate of 90%.

Stovall also points out that the S&P 500 has advanced in 78% of presidential election years since World War II, recording an average return of 6.8%. During the six years in which a first-term Republican president was seeking re-election, the S&P 500 was up 100% of the time, with a gain of 6.6%, on average.

How to Tap?

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

This is the ultra-popular and oldest U.S. equity ETF with AUM of $292 billion. It is the most actively traded fund with average daily volume of around 64.3 million shares and 0.09% in expense ratio. SPY has gained 27.2% in the year-to-date timeframe and has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook (read: Tax Loss Harvesting & Capital Gains: What ETF Investors Should Know).

iShares Core S&P 500 ETF IVV

With AUM of $197.7 billion, IVV trades in average daily volume of 3.7 billion and is one of the low-cost choices in the space, charging just 4 bps in annual fees. IVV is up 27.2% so far this year and has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard S&P 500 ETF VOO

This ETF charges investors 3 bps in annual fees. It has amassed $126.6 billion in its asset base and trades in average daily volume of 2.5 million shares. VOO has gained 27.3% this year and has a Zacks ETF Rank #2 with a Medium risk outlook (read: The Race to Zero: What ETF Investors Need to Know).

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 1.25x exposure to the index and is the cheapest choice in the large-cap leveraged space, charging just 36 bps in annual fees. It has accumulated $26.1 million in its asset base while trades in a moderate volume of 6,000 shares a day on average. The fund has added 35.4% this year.

ProShares Ultra S&P500 ETF SSO

This is the most-popular and liquid ETF in the leveraged space with AUM of $2.7 billion and average daily volume of around 1.4 million shares. The fund seeks to deliver 2x the return of the index, charging investors 0.90% in expense ratio. It has surged 53.8% this year (read: Leveraged ETFs That Are Up 25% Plus at Halfway Q4).

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 $11.6 million in its asset base and sees a lesser volume of about 8,000 shares a day on average. Additionally, SPUU has returned 56.9% 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 3.4 million shares per day on average. It has amassed $1.4 billion in its asset base and has soared 84.8% 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 $992.3 million but is liquid with average daily volume of nearly 3.7 million shares. SPXL has gained 85.4% so far this year.

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