UPRO Stock: What You Need to Know Before Buying This High-Risk, High-Reward ETF

RediksiaTuesday, 2 January 2024 | 04:30 GMT+0000
UPRO Stock: What You Need to Know Before Buying This High-Risk, High-Reward ETF
UPRO Stock: What You Need to Know Before Buying This High-Risk, High-Reward ETF

DIKSIA.COM - If you are bullish on the , the most widely followed index of the US stock market, you might be interested in . UPRO is the ticker symbol for UltraPro , an exchange-traded fund (ETF) that seeks to deliver three times (3x) the daily return of the S&P 500.

In other words, if the S&P 500 goes up by 1% in a day, UPRO should go up by 3%. Conversely, if the S&P 500 goes down by 1%, UPRO should go down by 3%. This makes UPRO a , meaning that it uses financial instruments such as derivatives and debt to amplify the exposure to the underlying index.

The Benefits of UPRO Stock

can offer several benefits to investors who are confident in the long-term growth of the US stock market. Some of these benefits are:

  • Higher returns: UPRO can potentially generate higher returns than the S&P 500 over time, especially in a bull market. For example, in 2021, UPRO gained 70.09%, while the S&P 500 gained 28.71%. This means that UPRO outperformed the S&P 500 by more than 2.4 times.
  • Lower cost: UPRO can provide a cheaper way to gain exposure to the S&P 500 than buying individual stocks or index funds. UPRO has an expense ratio of 0.92%, which is lower than the average expense ratio of 1.04% for leveraged ETFs. UPRO also has a low bid-ask spread, which means that investors can buy and sell UPRO at a price close to its net asset value (NAV).
  • Liquidity: UPRO is one of the most liquid and popular leveraged ETFs in the market, with an average daily trading volume of over 6 million shares. This means that investors can easily enter and exit UPRO positions without affecting its price significantly.

The Risks of UPRO Stock

UPRO stock also comes with several risks that investors should be aware of before investing. Some of these risks are:

  • Higher volatility: UPRO can experience higher volatility than the S&P 500, especially in a bear market. For example, in 2020, UPRO lost 26.40%, while the S&P 500 gained 18.40%. This means that UPRO underperformed the S&P 500 by more than 2.4 times.
  • Daily rebalancing: UPRO is designed to track the daily performance of the S&P 500, not its long-term performance. This means that UPRO has to rebalance its portfolio every day to maintain its 3x leverage ratio. This can result in compounding effects, which can either enhance or diminish UPRO's returns over time, depending on the direction and magnitude of the S&P 500's movements.
  • Leverage decay: UPRO can suffer from leverage decay, which is the loss of value due to the daily rebalancing and the fees associated with leverage. Leverage decay can erode UPRO's returns over time, especially in a volatile or sideways market. Leverage decay can also make UPRO deviate from its target return of 3x the S&P 500.

The Performance of UPRO Stock

UPRO stock has been one of the best-performing leveraged ETFs in the market since its inception in 2009. UPRO has delivered an annualized return of 30.25%, compared to 14.64% for the S&P 500. This means that UPRO has more than doubled the return of the S&P 500 over the past 12 years.