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Discussion Starter #61 (Edited)
Going back to this question of boosting (or leveraging) S&P 500 returns.

I've mentioned the SSO idea a lot, but the main problem is that this is a derivative ETF. It's totally synthetic and exotic, and I really don't touch things like that.

An alternative route might be using QQQ, a tech-heavy index ETF. This has the benefit of being a primary US index, and a plain vanilla ETF, without derivatives. The downside is obviously that it's a sector play.

Assume for a moment that the theme of this entire bull market (tech driving US stocks) continues. Notice that QQQ does act like a leveraged S&P 500. This chart shows QQQ vs S&P 500, and this sure looks like a "leverage effect" to me:

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It's also interesting to look at QQQ vs SSO. It appears that QQQ has been providing a similar leverage experience to SSO, almost precisely duplicating its leveraged index return.

But QQQ actually has better risk-adjusted returns over this bull trend, with milder drawdowns and less volatility. So if it's roughly duplicating the (desirable) leverage of SSO, but without derivative risks, and less risk of total blowup,

Maybe QQQ is the way to get greedy on the US?


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Discussion Starter #63
It's a sector play and not leverage per say. Different ideas, IMO.
That's true.

SSO is doing well even over the longer term (though it's not designed for that purpose). The 10 year annualized performance is 12.95% for SPY, and 21.43% for SSO.

At first glance that's an impressive 1.7x leverage after fees.

Still, the problem is the derivatives held inside SSO. They hold a number of swap contracts with various banks: Goldman Sachs, Bank of America, Credit Suisse, Societe Generale, UBS. Notice that they don't use exchange based index futures... here, SSO takes on counterparty risk (credit risk) of these particular banks.

If I were to implement such a strategy, my preferred method would be to use futures on the S&P and long bonds. I have been tempted to use the e-minis
It does seem that index futures would be a nicer way. No counterparty risk.
 

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It seems to me that we are just beginning another decade of low interest rate, low GDP growth and low inflation, which should benefit growth stocks represented in QQQ. Tilting to growth may help boost market returns, but it is hard to know.
 

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QQQ represents the NASDAQ the way the S&P represents the NYSE. Its biggest holdings are, Apple Microsoft Amazon Facebook Goog Googl Intel Cisco System Comcast and Pepsico. These account for 50% of its value. So you see it is basically a tech play.

If you really want leverage there is TQQQ a 3X leveraged QQQ ETF.
 
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