Two Advantages of Purchasing UPRO and Three Drawbacks to Consider
The ProShares UltraPro S&P 500 ETF (UPRO) is a popular leveraged exchange-traded fund (ETF) that aims to provide three times the daily performance of the S&P 500 index. In contrast, the Vanguard S&P 500 ETF (VOO) seeks to replicate the index's performance without leverage.
Long-term Performance Comparison
UPRO's strategy of tripling daily returns can lead to significantly higher gains in strong bull markets but also increases the risk of underperformance over the long term due to daily compounding effects. On the other hand, VOO delivers returns almost identical to the S&P 500 index with very low fees (0.03% expense ratio), making it a core, low-risk ETF option.
In recent years, UPRO has shown highly amplified gains during sustained bull markets, significantly outperforming VOO on those uptrends. However, it tends to underperform or incur large drawdowns during bear markets or volatile sideways markets due to the effects of daily resetting leverage.
VOO, on the other hand, provides more stable performance that reflects the overall market trend. For example, VOO showed about 12.5% annual returns over the past year and 64% total return over three years, closely tracking the S&P 500 itself.
Performance in Bull vs Bear Markets
UPRO's leverage can lead to triple gains on up days, but on down days, losses are also magnified. This means that in bear markets or corrections, UPRO can lose value much faster than VOO. The daily compounding effect can cause UPRO to underperform the theoretical 3x multiple over the long term, especially when markets are volatile or declining.
Summary
| Aspect | ProShares UltraPro S&P 500 ETF (UPRO) | Vanguard S&P 500 ETF (VOO) | |---|---|---| | Strategy | 3x daily leveraged exposure to S&P 500 | Tracks S&P 500 index exactly | | Expense Ratio | ~0.57% | Very low, 0.03% | | Long-term growth | Highly variable, can significantly outperform in bulls, underperform in volatile/bear markets | Steady, closely matches S&P 500 index returns | | Risk | High due to leverage and daily compounding | Low, market risk only | | Use case | Short-term tactical trading or aggressive bullish bets | Long-term buy-and-hold investing |
The long-term performance of UPRO has been buoyed by extended bull markets but also faces risks of underperformance or losses in bear markets or volatile periods due to its leveraged daily reset structure. Therefore, investors considering UPRO should be prepared for higher volatility and risk, and understand it is generally not recommended for long-term, buy-and-hold strategies the way VOO is.
While UPRO can yield substantially higher returns in strong bull markets, it comes with the possibility of large losses in downturns, unlike VOO's smoother long-term growth. It is important to have a clear plan and limit position size when investing in UPRO. The ProShares UltraPro S&P 500 ETF should be used with caution due to its volatility and potential for negative returns over a period where the S&P 500 is higher.
Money invested in the ProShares UltraPro S&P 500 ETF (UPRO) can deliver substantial returns during strong bull markets, but the finance industry advises investors to be aware of the higher volatility and risk associated with its daily leveraged exposure, which may lead to underperformance or losses in bear markets or volatile periods. In contrast, the Vanguard S&P 500 ETF (VOO) is a low-risk option for long-term investing, delivering returns almost identical to the S&P 500 index with very low fees, making it a core investment choice for buy-and-hold strategies within the business sector.
