Understanding SSO: A Practical Guide For Everyday Investors (SSO)

Core Viewpoint - The ProShares Ultra S&P500 (SSO) is an ETF designed to deliver twice the daily return of the S&P 500 index, utilizing derivatives for enhanced exposure to large U.S. companies, making it suitable for short-term trading rather than long-term investment [2][3][30] Fund Structure and Functionality - SSO resets its exposure daily and primarily invests in cash or safe short-term assets while using financial tools like total-return swaps and S&P 500 futures to achieve its leveraged exposure [3][5] - The fund trades on the NYSE Arca exchange, providing transparency, tax reporting, and ease of trading similar to large ETFs [4] Investment Appeal - SSO allows investors to gain approximately two dollars' worth of exposure to the S&P 500 for every dollar invested, enabling efficient capital use and flexibility in portfolio management [5][6] - It is particularly attractive for active investors who manage risk and make time-sensitive trades, as well as portfolio managers looking to temporarily increase market exposure while keeping cash available [7][8] Portfolio Composition - The fund does not own all 500 companies in the S&P 500 but instead uses a combination of financial contracts to replicate performance, with significant positions in S&P 500 index swap agreements and short-term E-mini futures [9][11] - SSO's investments include U.S. Treasury obligations and short-term investments, with a total net asset value of approximately $6 billion [13][14] Performance Metrics - Over the past month, SSO gained 3.66%, with a six-month increase of 42.04% and a one-year gain of 33.38%, significantly outperforming the median gains of other ETFs [18][19] - The fund has shown impressive long-term performance, with a total return of 182.74% over three years and 226.52% over five years [18] Dividend Insights - SSO has a trailing yield of 0.69%, lower than the median for all ETFs, but its dividend growth rate over the past year is 21.38%, indicating strong growth potential [20] - The fund has consistently increased dividends for three consecutive years and has paid them for 17 straight years, showcasing reliability despite its low yield [20] Cost Structure - The fund's expense ratio is 0.87%, higher than the median of 0.50%, reflecting the costs associated with leverage and derivatives [21] - Trading costs are favorable, with a bid/ask spread of just 0.01%, indicating efficient trading conditions [23] Risk and Volatility - SSO exhibits higher volatility than the average ETF, with a standard deviation of 25.63 compared to a typical 12.45, earning a "D" risk grade [25] - The fund's tracking error is also higher than average, indicating it does not closely track its benchmark, which is a trade-off for its leveraged structure [27] Investor Suitability - SSO is best suited for investors looking to make short-term bets on large U.S. companies and who actively manage their investments, rather than for those seeking long-term stability or consistent income [30][31]