There's now a juiced-up way to get 4 times the return of the S&P 500 — but it comes with many risks (2024)

Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., November 17, 2023.

Brendan Mcdermid | Reuters

A new product puts the leverage of high-powered hedge funds in the hands of the regular investor, allowing them to make a bet that moves 4 times the direction of the stock market on any given day.

The question is, will they want to? And should they, given the many risks that come with such a fast-paced strategy?

Bank of Montreal launched the Max SPX 500 4x leveraged ETNs, which will be the highest leveraged exchange traded product in the U.S., according to CFRA. The notes are based on the S&P 500 Total Return Index and will trade under the ticker "XXXX" beginning on Tuesday.

The launch of the 4x product comes at a time when retail investors and asset management firms are showing a renewed appetite for more volatile products.

Single-stock ETFs tracking major tech stocks like Tesla and Nvidia have started to find traction after launching last year. A fund focused on zero-day options launched in September. And many of the biggest ETF shops — including BlackRock's iShares — have filed with the SEC to create a bitcoin ETF, which is expected by many industry insiders to be approved early next year.

Investors have shown a preference for the higher leveraged funds, like the popular Direxion Daily Semiconductor Bull 3x Shares (SOXL) ETF.

"Looking at the trends and the data, it's very clear that the assets and the volumes tend to be more concentrated in the highest leveraged products and also the most volatile sectors," said Aniket Ullal, the head of ETF and data analytics at CFRA.

Short-term trading only

Like most leveraged products, the XXXX notes are designed for short-term trading. The leverage is reset on a daily basis, and investors should not expect to get the return on the label if they hold onto the note for a long period of time.

"Their performance over longer periods of time can differ significantly from their stated daily objectives. The notes are riskier than securities that have intermediate- or long-term investment objectives, and are not be suitable for investors who plan to hold them for a period other than one day or who have a 'buy and hold' strategy," BMO said in the prospectus.

There are also some key differences between exchange traded notes and the more popular exchange traded funds. While it is rare for an ETN to fail, they do have a measure of credit risk not found in ETFs.

"[ETFs are] just safer for investors in that sense, because you actually have physical holdings of securities that are being marked to market every day. Whereas in the ETN, you're essentially tracking an index and being promised a certain return," Ullal said.

The XXXX ETN is technically an unsecured liability of BMO that will mature in 2043.

The ETN is also much more expensive than the traditional passive index funds that many investors use to gain exposure to the S&P 500. The note carries an annualized investor fee of 0.95%. There may also be other costs to fund associating with a daily financing charge or an early redemption fee.

BMO is not the first firm to try out a 4x leveraged product, with some overseas markets offering even higher risk-return products.

And in 2017, the Securities and Exchange Commission did approve two products from a firm called ForceShares that were aimed at delivering 4x leveraged and 4x inverse returns of the S&P 500. However, the SEC quickly paused that decision, and the funds appear to have never launched.

The SEC did not respond to a request for comment on the BMO product, but the regulator did release an investor bulletin in August cautioning that leveraged and inverse products were not designed to be long-term investments.

There's now a juiced-up way to get 4 times the return of the S&P 500 — but it comes with many risks (2024)


There's now a juiced-up way to get 4 times the return of the S&P 500 — but it comes with many risks? ›

There's now a juiced-up way to get 4 times the return of the S&P 500 — but it comes with many risks. Bank of Montreal launched the Max SPX 500 4x leveraged ETNs, which tracks four times the total return of the S&P 500.

What is 4x leveraged S&P 500? ›

Long holding period risk - The 4x ETNs are intended to be daily trading tools for sophisticated investors and are designed to reflect a leveraged long exposure to the performance of the Index on a daily basis; however, their returns over different periods of time can, and most likely will, differ significantly from ...

Is it smart to invest in the S&P 500? ›

Once you've opened an investment account, you'll need to decide: Do you want to invest in individual stocks included in the S&P 500 or a fund that is representative of most of the index? Investing in an S&P 500 fund can instantly diversify your portfolio and is generally considered less risky.

How safe is the S&P 500? ›

It's safe to buy stocks, but the market environment warrants caution. To summarize, the S&P 500 moved much higher over the past year, and the index currently trades at a material premium to its historical valuation. Even so, Buffett continued to buy stocks throughout the year, including during the fourth quarter.

What is the average return of the S&P 500 in the last 50 years? ›

Stock Market Average Yearly Return for the Last 50 Years

The average yearly return of the S&P 500 is 11.35% over the last 50 years, as of the end of April 2024. This assumes dividends are reinvested.

Is 3x leverage risky? ›

Funds that offer 3x leverage are particularly risky because they require higher leverage to achieve their returns.

Can 2x leveraged ETF go to zero? ›

Because they rebalance daily, leveraged ETFs usually never lose all of their value. They can, however, fall toward zero over time. If a leveraged ETF approaches zero, its manager typically liquidates its assets and pays out all remaining holders in cash.

What if I invested $1000 in S&P 500 10 years ago? ›

Over the past decade, you would have done even better, as the S&P 500 posted an average annual return of a whopping 12.68%. Here's how much your account balance would be now if you were invested over the past 10 years: $1,000 would grow to $3,300. $5,000 would grow to $16,498.

How much money was $1000 invested in the S&P 500 in 1980? ›

In 1980, had you invested a mere $1,000 in what went on to become the top-performing stock of S&P 500 (^GSPC 0.12%), then you would be sitting on a cool $1.2 million today. That equates to a total return of 120,936%. The stock? None other than Gap (GPS -0.73%).

Can SP500 go to zero? ›

Can an S&P 500 index fund investor lose all their money? Anything is possible, of course, but it's highly unlikely. For an S&P 500 investor to lose all of their money, every stock in the 500 company index would have to crash to zero.

Why you shouldn't just invest in the S&P 500? ›

That's because your investment gives you access to the broad stock market. Meanwhile, if you only invest in S&P 500 ETFs, you won't beat the broad market. Rather, you can expect your portfolio's performance to be in line with that of the broad market.

Should I buy Spy or Voo? ›

If you are a cost-conscious investor, the VOO, IVV, and SPLG might make a more attractive option compared to SPY with their lower expense ratios. Conversely, you might appreciate the higher liquidity of SPY if you're an active or institutional trader.

Should I put all my money in the S&P 500? ›

Is Investing in the S&P 500 Less Risky Than Buying a Single Stock? Generally, yes. The S&P 500 is considered well-diversified by sector, which means it includes stocks in all major areas, including technology and consumer discretionary—meaning declines in some sectors may be offset by gains in other sectors.

How much would $100 invested in the S&P 500 in 1980 be worth today? ›

S&P 500: $100 in 1980 → $13,719.04 in 2024

This lump-sum investment beats inflation during this period for an inflation-adjusted return of about 3,505.34% cumulatively, or 8.42% per year. If you used dollar-cost averaging (monthly) instead of a lump-sum investment, you'd have $11,799.89.

Does the S&P 500 pay dividends? ›

The S&P 500 is an index, so it does not pay dividends; however, there are mutual funds and exchange-traded funds (ETFs) that track the index, which you can invest in. If the companies in these funds pay dividends, you'll receive yours based on how many shares of the funds you hold.

What is the 10 year return on the S&P 500? ›

Average returns
PeriodAverage annualised returnTotal return
Last year25.7%25.7%
Last 5 years14.2%94.5%
Last 10 years15.3%316.2%
Last 20 years10.6%651.5%

Are there 4X leveraged ETFs? ›

It is called the MAX S&P 500 4X Leveraged Exchange Traded Note XXXX, and it will offer investors daily returns four times that of the S&P 500 Total Return Index. The fund's sponsor, Max ETNs, already offers four other leveraged ETNs offering 3X exposure to the airline and auto industries.

What is leveraged 3x S&P 500? ›

These leveraged ETFs seek a return that is 300% or -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times or negative three times the return of the benchmark's cumulative return for periods greater than a day.

What is 2x leverage s&p500? ›

S&P Leveraged Indices are designed to generate a multiple of the underlying index return, minus the cost of borrowing capital to generate excess index exposure. The S&P 500 2X Leverage Daily reflects 200% of the return (positive or negative) of the S&P 500® including dividends and price movements.

What does 3x daily leveraged mean? ›

Daily leveraged exposure means the compounding effect will be amplified and occur daily, which can have a positive or negative effect on returns over longer periods. If the FTSE 100 price is £100 and rises by 1%, the Boost FTSE 100 3x Leverage Daily ETP (3UKL) will rise by 3% to £103 (excluding fees & adjustments).


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