Group 1 - The primary macro factor driving potential gains in the aerospace and defense sector is the recovery of commercial aerospace, rather than solely defense spending [2][6] - GE Aerospace has benefited from accelerated airline fleet renewal, while RTX has also participated in the commercial aviation recovery [2][3] - Traditional defense contractors like Lockheed Martin have exhibited different performance patterns compared to commercial aviation [2] Group 2 - Future performance will depend on global aircraft delivery schedules and airline capital expenditure plans, with Boeing being a critical player in the sector [3] - Any production delays or quality issues from Boeing or Airbus will significantly impact the sector due to the 3x leverage of the Direxion Daily Aerospace & Defense Bull 3X Shares (DFEN) [3][5] - Industry forecasters expect continued strength in the aerospace sector, with Fitch Ratings projecting defense spending to reach 3.5% of GDP by the end of the decade [4] Group 3 - The aftermarket maintenance sector is projected to grow at an annual rate of 3.2% through 2035, presenting a significant opportunity [4] - DFEN's structure creates specific risks due to its leveraged nature, which can amplify volatility from concentrated holdings like GE [5][6] - Monitoring GE's performance is crucial as its volatility is magnified through DFEN's leverage, and changes in top holdings concentration should be tracked [5]

Core Insights - The article compares two leveraged ETFs, Direxion Daily S&P 500 Bull 3X Shares (SPXL) and Direxion Daily Semiconductor Bull 3X Shares (SOXL), highlighting their different risk profiles and performance metrics [1][8]. Cost & Size Comparison - SPXL has an expense ratio of 0.87% and AUM of $6.2 billion, while SOXL has a lower expense ratio of 0.75% and AUM of $13.6 billion [3]. - The one-year return for SPXL is 30.47%, whereas SOXL has a significantly higher return of 50.52% [3]. - SPXL offers a dividend yield of 0.75%, compared to SOXL's yield of 0.53% [3]. Performance & Risk Comparison - Over five years, SPXL has a maximum drawdown of -63.80%, while SOXL has a much steeper drawdown of -90.46% [4]. - An investment of $1,000 in SPXL would grow to $3,158 over five years, while the same investment in SOXL would only grow to $1,390 [4]. Holdings Composition - SOXL is fully invested in the semiconductor sector, with 100% of its assets in technology stocks and 44 holdings, including major companies like Advanced Micro Devices, Broadcom, and Nvidia [5]. - SPXL tracks the S&P 500, diversifying its risk across more than 500 stocks, with significant allocations in technology, financial services, and consumer cyclicals, featuring top holdings like Nvidia, Apple, and Microsoft [6]. Investment Implications - SOXL is characterized by higher volatility and risk, with a beta of 5.32, compared to SPXL's beta of 3.07, indicating more extreme price swings [3][9]. - Investors must weigh the potential for higher returns from SOXL against its increased risk, while SPXL offers more diversification and less volatility [11].

Recently the SEC halted its review of highly levered ETFs in a signal they may be attempting to curb this burgeoning asset class. Source: Bloomberg, 1-year return data from 12/31/2024 – 12/3/2025. 3-year return data from 12/4/2021 – 12/4/2025. For illustrative purposes only. In the past, levered ETFs like the ones above have been reserved for large index-like asset classes which typically don't exhibit outsized volatility before additional leverage is applied. Even so, when adjusting for their Beta (Risk!) ...

Core Insights - Leveraged ETFs, such as SPXL and SPXU, provide amplified exposure to the S&P 500 but are subject to volatility drag, which can erode performance over time, especially during high volatility periods [1][3][4] - A proposed volatility filter adjusts ETF exposure based on the relationship between short-term realized volatility and implied volatility, aiming to enhance returns while mitigating drawdowns [4][5][53] Group 1: Leveraged ETFs Overview - Leveraged ETFs like SPXL and SPXU aim to deliver three times the daily return of the S&P 500, both in long and inverse directions [3] - The daily rebalancing mechanism of these funds introduces volatility drag, causing realized performance to diverge from the theoretical returns over extended periods [3][4] - The VIX index serves as a measure of implied volatility, reflecting market expectations of future volatility based on S&P 500 option prices [4][10] Group 2: SPXL Strategy - The SPXL strategy utilizes a volatility filter, investing when implied volatility (VIX) exceeds realized volatility (SPY's standard deviation), indicating favorable market conditions [17][39] - Backtesting from July 2013 to July 2025 shows that the SPXL strategy achieved an annual return of 27.68%, significantly outperforming the benchmark's 13.62% [19] - The strategy's performance improved with longer realized volatility windows, leading to higher Sharpe and Calmar ratios, indicating better risk-adjusted returns [27][33] Group 3: SPXU Strategy - The SPXU strategy operates inversely, investing when realized volatility exceeds implied volatility, suggesting potential declines in the S&P 500 [39][38] - Despite modifications, the SPXU strategy yielded weaker results, with a performance of -8.29% compared to the benchmark's 13.62% [40] - The analysis indicates that bearish leveraged exposure is more challenging to exploit systematically, although the strategy showed improvements over holding SPXU outright [54][52] Group 4: Conclusion - The analysis demonstrates that volatility-based filters can enhance the performance of leveraged ETFs, particularly for SPXL, by identifying favorable conditions for exposure [53] - In contrast, the application of the same framework to SPXU produced inconsistent results, suggesting potential for selective hedging rather than systematic exploitation [54]