Vanguard History

You want Vanguard history! Here's Vanguard history:

The NY Times financial page listings of mutual funds on Friday August 20th 1976 for Thursday's August 19, 1976 trading day showed Vanguard's 8 mututal funds with $2B aum all with substantial 8.5% front-end sales loads. (hit refresh if the pic does not load!)

Source for all illustrations: New York TimesMachine

"Welltn" is the Wellington Fund, Vanguard's oldest fund, issued July 1, 1929 (source: https://investor.vanguard.com/investment-products/mutual-funds/profile/vwelx#overview). Wellington was and is a balanced fund (owns stocks AND bonds) that survived the great depression. Wellington was offered, on this date, at $11.05 per share with a Net Asset Value (NAV) or bid at $10.11 per share down $0.09 per share. Note that nearly ALL mutual funds at the time have 8.5% loads. 

The exceptions in this list include the "Unit Svcs", "Vand Gth", Vand Inc", and "Wein Eq" funds all showing N.L. for "No Load", that is, no sales charge. No Load funds are NOT sold by brokers - the salesman of the investment industry. No Load funds are sold directly to investors by word of mouth or advertisements. 

On Saturday Aug 21, 1976, as shown in Sunday's listings below, Vanguard posted a placeholder for the "First Index Investment Trust", the world's first S&P 500 index fund. It is displayed with no price as "FtIndx unavail" .

Oddly, the above Sunday listing shows only NAVs and the prior NAV and change. The fund was listed in the papers with no price while Bogle and his associates conducted a road show trying to raise money for the IPO. 

Here we go! Finally, on Tuesday, August 31st and displayed in the NYT's financial pages the next day, the First Index Investment Trust IPO was priced and traded at $15. Oddly, the IPO was issued with a $14.15 NAV equal to a 5.6% load.  According to Bogle (source: "The Professor The Student and the Index Fund") the IPO's brokers' Dean Witter; Bache Halsey Stuart; Paine, Webber, Jackson & Curtis; and Reynolds Securities (all now defunct) were expecting to raise $150MM (or $100MM by other accounts) and raised only $11.3 MM, less than 800,000 shares, for the IPO. The brokers wanted to cancel the offering but Bogle would not have it. 

It took six months for Bogle to realize, without ever saying it as far as I can find, that brokers - the salesmen of the investment industry - would have nothing to do with his new passive index fund. They STILL don't! So, on Wednesday, February 9, 1977, the entire portfolio of Vanguard mutual funds dropped their sales charges and went no load.

This is displayed in the NYT first as dots showing no offer price and the next day the NYT (actually the Nasdaq listing service) got it right showing all Vanguard offerings as no load funds.

The rest of the story you know.

Beating the Commodity Indexes

 

Beating the Commodity Indexes: How Vista Turned Indexing Discipline Into Outperformance

By George Rahal, creator Vista Commodity Basket

This article is informational only. 

For decades, indexing has been the quiet winner of the investing world. John Bogle built a movement on a simple proposition: passive indexing can beat most active managers over time. In stocks and bonds, that argument is largely settled. In commodities, however, the story is different — and that difference is exactly where Vista lives.

Vista’s core thesis is that commodity indexing can beat active commodity managers. But not in the same way the legacy commodity indexes were built. Equity and fixed-income benchmarks largely emerged from academia and the buy side, where methodology, invariance, and long-term investor interests mattered. Commodity indexes, by contrast, were often built by traders, for traders. That history left structural flaws: excessive turnover, avoidable volatility and transparent rolls that invite front-running, and weighting schemes that reduce returns over time.

“Commodity indexes were created by traders, for traders — and let the buyer beware.”

Vista's Commodity Basket Delivers the Asset Class

What follows is an argument that commodity indexing requires more care than many investors realize. Vista starts with the indexing premise — broad, rules-based exposure can be powerful — and then applies it to commodity futures in a way designed to reduce avoidable frictions. This Vista Commodity Basket is created to beat the existing headline commodity indexes (the GSCI and Bloomberg indexes) and therefore most active managers, too. 

How Do You Outperform an Index?

Outperformance is not magic; it comes from deliberate design choices that seek to reduce cost, lower avoidable risk, and preserve broad commodity exposure:

• Reduce turnover to eliminate significant transaction costs.
• Reduce volatility by owning the low-volatility portion of the futures curve rather than the jumpy front month.
• Own the "efficient" frontier — the right mix of fair, well-formed, true price-discovery markets, while avoiding overlap and concentrated market power.
• Use silent rolls so that specialists and front-runners can't trade ahead of a predibasketble, transparent schedule.
• Weight by market-based measures — contract quantity versus open interest, equal weighting, and exogenous inputs — rather than by an arbitrary committee.

Any index worth the name has to serve two masters. It must be relatively invariant, so it can function as a valid benchmark and make period-to-period comparisons meaningful. And it must be genuinely useful to long-term investors, which means it can't violate the principles of sound fund management. Most commodity indexes struggle to satisfy both at once.

Building the Basket: A Rules-Based Screen

Vista's methodology is observable and rules-based. We start with more than a thousand symbols and narrow them through six screens — four of them proprietary — to identify the right names, months, and weights:

1. Inclusion Screen — established, regulated commodity futures only.
2. Liquidity Screen — open interest, volume, bid/ask spreads, market depth, and capacity.
3. Fairness Screen — commitment of traders, market power, and the regulatory environment, so investors get true price discovery and everyone is a price taker.
4. Volatility Screen — term structures and seasonality, favoring calmer parts of the curve.
5. Market Form Screen — contract specifications.
6. Weighting and Roll Method — contract quantity, frequency, silence, and collateralization.

The result is a basket that's different, but not too different. Many of our names and weights land close to the benchmarks — but we get there through a transparent, repeatable process rather than a committee vote. The basket rolls roughly once a year, at least three months before expiration, and deliberately never holds the front month or the high season, sidestepping unnecessary volatility.

“Different, but not too different — we get there through an observable, rules-based process.”

Why Vista

When asked what sets us apart, the answer is systematic outperformance built on pure exposure: the right names, months, rolls, and weights, with no manager risk, no leverage, industry-low round-turns per million, low margin-to-equity, and high but not complete transparency. In our view, Vista is among the few baskets that explicitly manages to avoid unnecessary volatility and minimize turnover. It is the Bogle proposition applied to a corner of the market that has largely resisted it.

Recognized by Barclay Hedge

Vista’s Index Program has earned repeated recognition from Barclay Hedge, including Top 10 recognition for the full year 2010, a #2 ranking for October 2011, and additional Top 10 recognition in November 2011 and January 2012 in the Diversified Traders Managing Less Than $10M category.

Those rankings do not eliminate risk and do not guarantee future results, but they help illustrate an important point: the strategy is designed to pursue market-based outperformance without relying on leverage, discretionary manager calls, or opaque positioning.

That design discipline becomes most visible when Vista is measured against passive commodity products over a full market cycle. The comparison below extends the article’s core argument from methodology to measured results, using passive commodity benchmarks and broad equity ETFs to place Vista’s performance in context.

The Vista Commodity Basket performance was examined over a 17-year period from April 2009 to July 2026, with calendar-year comparisons from 2010 through 2025. The analysis focuses on two categories of alternatives: passive commodity index products, including DJP and GSG, and broad equity market benchmarks, including VOO and QQQ.

Performance vs. Passive Commodity Indices (2010–2025)

Vista was compared against two widely held passive commodity products: DJP, which tracks the Bloomberg Commodity Index Total Return, and GSG, which tracks the S&P GSCI with heavier energy weighting.

Cumulative Performance (2010–2025)

Strategy	Cumulative Return	Avg Annual Return	Volatility
Vista Basket	+71.2%	+4.3%	13.9%
DJP	+30.3%	+2.7%	15.1%
GSG	-27.5%	-0.1%	19.4%

The Vista Basket delivered cumulative returns of +71.2% over the 16-year measurement period, compared to +30.3% for DJP and -27.5% for GSG. Critically, Vista achieved this outperformance with lower volatility than both passive alternatives.

Annual Win Rate Analysis

·         Vista Basket won 7 of 16 calendar years (44%).

·         DJP won 4 of 16 years (25%).

·         GSG won 5 of 16 years (31%).

·         Vista beat DJP in 50% of years and GSG in 62.5% of years.

Notable Periods

The 2014–2015 oil price collapse proved devastating for passive commodity exposure. GSG, with its heavy energy weighting, lost -33.0% in 2014 and -34.1% in 2015 — a cumulative drawdown exceeding 55%. DJP fared somewhat better but still posted -17.0% and -16.0% in those years. Vista diversification and active management limited losses to -13.8% in 2014 and -22.6% in 2015, preserving capital during a period that permanently impaired many passive commodity investors.

Conversely, during the 2021 commodity supercycle, all three strategies posted strong gains: GSG +38.8%, DJP +31.1%, and Vista +29.0%. While Vista lagged in this momentum-driven environment, its consistent compounding in other years more than compensated.

Contextualizing Returns: Commodities vs. Equities (2010–2025)

Any honest assessment of commodity investing must acknowledge the extraordinary performance of U.S. equities over this period. QQQ delivered a cumulative return of approximately +1,277%, while VOO returned approximately +647%. Those results dwarf commodity returns in absolute terms and reflect an exceptionally favorable regime for U.S. equities, including declining interest rates, quantitative easing, and technology-sector dominance.

The comparison, however, is not simply a contest of standalone returns. Commodities can provide diversification value, inflation sensitivity, and exposure to global growth through mechanisms different from equities. During inflationary or supply-constrained regimes, those characteristics may matter more than headline comparisons suggest.

Risk-Adjusted Perspective

On a risk-adjusted basis, Vista’s estimated Sharpe ratio of 0.31, based on a 4.3% average annual return and 13.9% volatility, compares favorably with passive commodity alternatives. DJP’s estimated Sharpe ratio was approximately 0.05, while GSG’s was negative over the measurement period. While Vista’s maximum drawdown was significant, the comparison suggests that the active approach added meaningful value within the commodity asset class.

Implications for Institutional Allocators

For institutional investors, the lesson is not that commodities should replace equities. It is that commodity exposure should be implemented carefully. Passive commodity indexing faces structural challenges including predictable roll schedules, and rigid rebalancing rules. Vista’s performance relative to DJP and GSG suggests that an alternative, systematic approach can vastly exceed legacy commodity index returns while preserving broad commodity exposure.

Conclusion

Vista’s 17-year record reinforces the article’s central point: commodity indexing discipline can be improved when it is adapted to the unique structure of futures markets. While commodities underperformed the extraordinary U.S. equity bull market of 2010–2025, Vista’s results versus passive commodity alternatives demonstrate that manager design, roll discipline, volatility control, and market selection can materially affect outcomes.

Past performance is not indicative of future results. This analysis is for informational purposes only and does not constitute investment advice. Commodity futures trading carries substantial risk of loss.

 

Game Changer? Time to be out?

https://www.facebook.com/share/1CKs6RS1hA/

Vista up 24% in 2025

The Vista Commodity Index rose 23.8% in 2025 besting both the Bloomberg and S&P GSCI commodity indexes up 15.9% and 5.8%, respectively. Commodity index returns since Vista's inception are shown below:

Vista's superior performance is primarily due to overwieghting in gold and other precious metals. The Bloomberg index bested the S&P 500 ETF, SPY, also due to its precious metals weighting. The GSCI index ETF, GSG, was drawn down by its overweighting in energy, especially crude oil. 

STILL, the 10 and 15 year returns were far below SPY reflecting the commodity collapse 10 to 15 years ago. While the long term commodities were weak, the yearly chart clearly shows the strength of metals in 2025.

Both Vista, by a lot, and Bloomberg, by a little, beat the S&P 500 ETF SPY. SPY fell almost 20% during April's tarif tantrum whle Vista and DJP barely moved lower. 

WHY do I use index ETFs instead of indexes? Simple answer: investors cannot buy indexes! We can and do buy index ETFs. Also, these particular index ETFs are the benchmark ETFs in their categories with the lowest tracking errors. SPY is the olderst S&P 500 ETF in the world and trades largest, lowest fees and lowest tracking error ETF with Vanguard's S&P500 ETF, VOO (not shown).

Why use "excess return" indexes and not the "headline" "total return indexes"? Total return indexes include, wrongly in my humble opinion, the assumed Treasury Bill interest earned on the margin dollars held in a commodity account. Excess return only measures the return of the commodity futures postions. Vista, DJP and GSG all reflect the excess return indexes. 

Vista Commodity Index Component Returns

Source: Barchart.com

NYMEX Silver leads the pack up 138% in 2025! Silver has lead the commodity pack for the last 20 years! Three other names: Gold, Copper and Coffee we up over 50%. The rest of the pack were slightly up or significantly lower ending the year. The declines, imho, are exaggerated due to commods coming off record highs last year. 

All-Time Highs

There's a hullabaloo recently that the S&P 500 (and nearly all market measures) have made all-time highs (or remade, to be more accurate). What's missing here is the glide path and a reality check. Here's SPY, the S&P 500 tracking ETF, for year-to-date 2025 and since inception as of this writing:

SPY = S&P500 SPDR
Max = All-Time High

Looking at the year-to-date chart one thinks: "not so much". Looking at the long-term chart, the market looks like its ALWAYS at all-time highs! This still begs the question: do you dare buy stocks at all-time highs? Or do you wait? First lets see how rare are all-time highs? And, do they matter? Here's the chart of the yearly percentage of all-time highs since the inception of SPY on 2/2/1993 and each year's return:

Annual Return = Continuously compounded annual return.

% ATH = Percentage of year's trading days at all time highs. 

Closing price source: Barchart.com

For instance, in 1995, SPY was at all-time highs for 23% of all trading days and closed up 32.1%. In 2008, SPY had NO, ZERO, NADA all-time highs and ended down 45.9%! Technically, there's a .56 correlation coefficient between all-time highs and annual returns. In practice, the ten years of zero all-time highs skew the results. There probably IS a stronger correlation of market highs and market returns. 

As to the burning question, is it good or bad to buy at all-time highs? To measure this, I look at the rolling returns for buying SPY on all days, days in years with all-time highs (normal years, excludes the 10 years with no all-time highs) and only on all time highs. Here we go:

For instance, the average 1 day return for every day SPY has traded is 0.04%. Excluding years with no all time highs rises the daily return to 0.06%. Buying on all-time high days raises your average 1 day return to a fantastic 0.59%. This is not uniform across holding periods. Holding periods greater than 5 year's have little effect. The 1 year holding period buying at all-time highs is dramatically higher, at 21.47%, versus buying just any day or even excluding days with no all-time highs. With the above results, one can conclude that buying at all time highs has HIGHER returns than buying on other days. It's almost an obvious result. 

It's hard to know if a year is "normal" in this definition of "normal=year with all-time highs". You may not know until the last day of the year. It's easy to buy at all-time highs. You just have to wait. Sometime you have to wait for years!

Vista Basket Up 4.8% 1H2025

The Vista commodity basket of 15 diversified long-dated commodity futures contracts posted a 4.8% gain in 1H25. Vista edged above the diversified Bloomberg commodiy index, up 3.2%, and the energy weighted S&P GSCI, DOWN 0.2%, for the period.

Value Added Market Index where the 12/31/2024 close = 1000.

While the Vista basket ended well and BCOM ended with a gain, the glide path for the first half was bumpy, at best. Commodities, along with everything else, tanked on the tariff tantrum and then, like everything else, recovered as the tariff threats subsided. So much for non-correlated returns! Commods are still not where they were at their early April peak. I added SPY, the S&P 500 ETF, just to show why I really don't buy commodities anymore. But there are true believers out there. 

For the first time, I am making the Vista basket available to anyone who asks. Its no secret that it beats the headline commodity indexes-consistentaly and over the short and long term. It should be no secret exactly WHY it does. Also, there's nothing complicated about it. All you need is a futures account. If funded properly, you will never have a margin call. Although, the margin is a little rich for retail but its within the grasp of family offices. The exact names, months and roll dates used to be proprietary and are now available for the asking. Contact me at gdrahal@vistamktresearch.com for more informaiton. 

FYI, here's Vista performance since inception.

Value Added Market Index where the Vista inception date 4/30/2009 close = 1000.

S&P Recovers to New HIgh

Today the S&P 500 stock index finally recovered to its prior high created during the Biden administration. 

Since Trump, the market has fallen 27% (or 1300 S&P points) from Trump's on again/off again political and economic instability highlighted by lawlessness, tariffs and lies. Even today's rally is headlined by "Hopes" for trade deals. In fact this is just a return to the status quo BEFORE this ruinous administration. 

Don't get too excited by these "all-time" highs! They were a common occurrance before Trump. The real economy is learning to overcome American madness and continue on its historical path. The lesson to be learned, if there is a lesson, is that not even Trump can dent the American economic engine. 

COMMODITY FUTURES MYTHS

With the CTA Expo returning in September, I decided to share some thoughts from my 40 years of commod market experience. These are some of what I think to be MAJOR MISCONCEPTIONS in commodity markets, some repetitive and presented in no particular order:

COMMODITY FUTURES MYTHS:

• Roll yield exists, negative or otherwise.
• Rolling futures in contango will result in a loss.
• Investors will lose money if a market is in “contango”. 
• Investors will profit if a market is in “backwardation”.
• Losses or gains are incurred within an account by rolling from one contract to another.
• Commodity futures prices converge to spot over time.
• Commodity prices are “mean reverting”.
• Spot indexes are appropriate benchmarks for investment. 
• Spot returns equal the return achieved from purchasing physical commodities.
• Investors should choose hedge fund managers to make money in commodity markets.
• Investors should choose commodity ETFs to make money in commodity markets.
• Cost of carry means you start at a loss.
• Commodity traders differ from traders in bonds and stocks.
• Commodity traders are not buy and hold investors.
• Commodity traders are not biased to the long side. 
• Commodity sources of return are spot, collateral and roll yield. 
• Negative roll yield is the reason for legacy commodity index underperformance. 
• Commodities are leveraged investments. 
• Commercial traders are short, specs use trend following strategies.
• Commercials make money, specs lose money. 
• Commodity trading volume confirms price.
• Long only is a failed strategy.
• Legacy commodity indices are meaningful benchmarks.
• Commodity indexes are bad.
• Newly hatched “third generation” commodity indexes are better than the old ones.
• Continuation data is valid.
• Most academic studies don’t have serious data issues and flawed results.
• Legacy commodity indexes are not negative momentum strategies.
• Negative roll yield hurts UNG.
• Commodity ETFs have low tracking error.
• You can't get out of  a limit down market.
• Long-dated futures predict prices.

None of the above are true. Much of the above are dogma and repeated often by traders and academics alike.

Before accepting any rule of thumb in commodity trading, download actual contract closing prices and consider each roll as an entirely new position. Accounting for margin is always problematic. Every investor has a differenct capital position. Assuming fully collateralized positions at all times WILL affect your cash account as cash is added or withdrawn to maintain full collateralization. Since each new position creates a new basis, cash has NO effect on return. The way the CFTC requires CTAs and Pools to report will show different returns for the exact same positions depending upon the cash account. All fully collateralized (not over, not under) accounts with the same positions will post the same results.

TTEQ v SPY

On LinkedIn, T. Rowe Price (TRP), one of my fave and recommended fund managers, posts:

Our tech experts share their perspectives on global technology opportunities, the importance of active management in ETF investing, and the role our new Technology ETF (TTEQ) could play in your clients' portfolios. https://lnkd.in/dJCNdpCT

(boldface added by me). 

Ok, we finally have a symbol (after a number of these touts without a symbol). So let's take a look and see how this relatively new fund (first trade date 11/24/2024) stands up to the tried and true.

Due to the short life of this fund we will compare all the short term periods measured by Barchart.com. TTEQ clearly beats SPY and IWM.

TTEQ is a tech ETF while QQQ is the king of tech ETFs. TTEQ beats QQQ short-term: that is, for the last 5 days, 10 days (by 30%), 20 days (similarly) and one month. For longer periods, before the tariff tantrum was announced, not so much. TTEQ is slightly worse than QQQ in all the longer periods.

For a fund this young, these results can't really answer the question "Which is better QQQ or TTEQ? Only years of performance will tell. Can T. Rowe Price's active managers really beat the QQQ tech stock index? QQQ cannot sell and cannot go short. QQQ will fully recover from every market break - large and small. As much as I like TRP, its the test of every active manager to avoid at least SOME of the market breaks and, if you are really an optimist, catch market breaks short. 

Historically? Fund managers cannot do this. But TRP is one of the greatest and fairest fund managers. Let's hope they can do it. 

T. Rowe Price Capital Appreciation Fund

Today, T. Rowe Price, one of my favored and recommended fund managers, touted their Capital Appreciation Fund, symbol PRWCX, claiming "17 years" of superior performance on LinkedIn.  

An Unprecedented Streak of Performance

So, I just had to check.

SPY in blue
PRWCX in red
20 year normalized performance

Source: Barchart.com

Sorry, but I just don't see it. 

More from TRP:

Our Capital Appreciation suite puts a record-breaking team on your side

Our commitment to serving clients drives us to think deeply about their needs and develop powerful solutions to address different investor goals. The Capital Appreciation Fund is just one of several in our Capital Appreciation suite, each designed with different objectives and risk tolerances in mind. While each fund has a unique investment objective, all share a single goal: to deliver better outcomes for clients.

T. Rowe Price Capital Appreciation Equity ETF (TCAF)   Seeks capital growth	T. Rowe Price Capital Appreciation Fund (PRWCX) - Currently closed to new investors Seeks capital growth plus preservation	T. Rowe Price Capital Appreciation & Income Fund (PRCFX) Seeks income plus capital growth

Vista Commodity Basket up 7% Q1 2025

The Vista Commodity basket of 15 diversified long-dated commodity futures contracts rose 7% in the first quarter of 2025. While April's tariff tantrum tanked stocks and the commodity ETFs, the long-dated Vista basket fared a little better falling only to unchanged for the year. 

Normalized ccrors where 12/29/2023 = 1000

VISTA =  Vista Commodity Basket

SPY = SPDR S&P 500 ETF

DJP = Bloomberg Commodity Index ETF

GSG = S&P GSCI Commodity Index ETF

Source: Barchart.com

Rollng Returns as of 3/31/2025.

The long-term chart shows how the Vista basket recovers to new all-time highs while the major commodity index ETFs have barely broken even for the 16 year period and still have far to go to make their 2010 highs. 

Normalized commodity ETF performance where 4/30/2009, the Vista Basket inception date, = 1000.

2025's commods were propelled by gold's 20% gain in the first quarter. Note, the table below has a 4/12/2025 end date. 

Source:Barchart.com

While commodities LOOKED healthy, tariff threats can take a major toll on these and all markets. The world was in an excellent position for outsize returns in nearly all markets. Tariff threats are actually an ex-ante or externality not central to the real economy, at least not YET central. If they become real, all bets are off and the world of unintended consequences rears its ugly head. EVEN IF, all threats are rescinded, the economics may not recover for a long time as the rule of law, confidence and trust in Pax Americana may be broken for four or more years. 

© VistaMktResearch, All Rights Reserved  

gdrahal@VistaMktResearch.com 

AQR versus SPY + BND

After reading a tout piece on the history of AQR as a quant fund I looked it up. AQR (symbol AQRIx) is a 60-40 stock/bond fund for rich people. The minimum individual investment is $5 Million!

SPY = SPDR S&P 500 ETF
AGG = iShares Aggregate Bond ETF
AQTIX = AQR Multi Asset Fund

Look at the YTD%Chg, down only a fraction of the market. AQR is the fund Bernie Madoff wanted to show his investors, nary a down year. But then again, while avoiding risk, you avoid gains as the 2,3,5,and 10 year returns show. 

Then again, why buy AGR when you can make your own 60/40 SPY/BND mix. And this mix triples while AGR doubles? Caveat: it will take work and cost rebalancing you own 60/40 portfolio. So maybe the difference between the green and orange is rebalancing cost.

The Magic of 3X ETFs

This data in this post is as of 2/10/25.

On January 29, 1982, trading began in the Chicago Mercantile Exchange S&P 500 futures contract (symbol ES). This futures contract was designed primarily for institutional and large speculative investors. (Today there’s the micro e-mini and many other index futures contracts.)

On January 29, 1993, State Street’s S&P 500 SPDR (symbol SPY) became the first index exchange traded fund (ETF) which offered indexers the ease and liquidity of regular stock trading.  And finally, on November 6, 2008, a controversial innovation, the S&P 500 Bull 3X Direxion ETF (symbol SPXL) began trading. SPXL is a “3X fund”, it targets three times the daily return of the S&P 500 index each day. SPXL may have three times the risk, but this is where the magic happens!

To start, let’s compare the 5-year chart for the above three liquid index products: SPY (the plain vanilla S&P stock index ETF), ESn (the continuous “nearby” S&P 500 futures contract) and SPXL (the jacked up 3X leveraged S&P 500 ETF):

Continuously compounded performance, normalized where 1/3/2020 = 1000.

 

Table 1

SPY = S&P 500 SPDR

ESn = S&P 500 “E-mini” continuous nearby futures contract

SPXL = S&P 500 Bull 3X Direxion ETF

Continuously compounded annualized return and standard deviation.

Source: barchart.com closing prices adjusted for dividends and splits.

 

First let’s note the chart has 2 major market breaks, one in 2020 and the other in 2022. Also note Table 1 in no way shows SPXL (or any other 3X ETF we look at, for that matter) delivers 3X for extended periods. The one month is close: 8% versus the 9% target. Going further out the SPXL definitely has a higher return than the index but the farther out you go, volatility takes its toll. SPXL’s 1 year 43% is good but far off the 3X 60% target. For the 2, 3 and 5 years, the gap only gets worse. To Direxion’s credit, the SPXL prospectus makes no claims for periods over ONE DAY! Even the 3X daily target has no guarantee. The prospectus does point out the risk that a 33% one day drop in the index is a 100% loss in the 3X.

 

Looking again at the chart, SPY fell roughly 30% in the 2020 market break. At the March 2020 low, SPXL was down 70%!  You COULD claim that SPXL outperformed, beating its -90% target, but this was no comfort as we lived it. The 2022 market break took SPY roughly from up 50% on Jan 1, 2022, to up only 20% by October, a 30% decline.  At the same time, SPXL went from roughly +100% to -20%, a 120% decline-this time exceeding its 3X target!

 

Before leaving returns, let’s point out that SPY and nearly ALL broad-based index ETFs have de minimis tracking error. They are excellent proxies for their underlying indexes. Also note that the index futures contract lags the index generally in all periods. This is due to the cost of maintaining a futures position-rolling futures from the March contract to June, to September and finally the “Christmas” December expiration month and so on.

 

We see the risks, let’s see the magic!

 

To see this, assume you throw caution at the wind and recklessly want to maximize your exposure to the S&P 500 stock index with the least amount of cash possible. The E-Mini S&P 500 futures contract value equals $50 per point ($50 x 3642.25 =) $182,113. The “exchange minimum margin” on January 3, 2020 was $6,300. $6,300 controlled $182K! This is insane 30X leverage! If the E-mini falls 126 points, you are wiped out. But long before that happens, your broker will give you a margin call or sell you out. Or, more likely, will NOT honor exchange minimums and demand a much larger initial deposit.

 

Next, you buy $182,000 SPY on maximum 50% margin, borrowing half of the purchase and paying half in cash or $91,000 . Finally, buy $182,000 worth of SPXL. Since this is 3X, you cannot buy on margin but your $60,000 purchase allegedly controls $180,000.

 

Table 2

  

In Table 2, we see the market price and starting account value for each of our investment comparisons.

 

Table 3.

 

In Table 3 we assume the investor holds their ETFs or rolls their futures and meets ALL margin calls with no withdrawals from the 1/3/2020 start date to the current 2/10/2025 end date. Commissions and interest not included.

 

Here comes the magic! While the returns are all roughly the same, leveraged futures and marginable stock have the risk of margin calls. Your 3X ETF will have NO MARGIN CALLS no matter where the market goes. Due to the hocus-pocus of 3X money managers, 3X can give you a dollar certainty the other choices cannot. You are one and done with 3X. You are one and maybe many margin calls- not done- with the others. In the end, the total dollars for futures and 3X, were not much different (roughly $60K) nor did they affect the returns. But on day one, who knew? While not an endorsement of 3X ETFs, take this as an illustration of the three basic ways to leverage a position.

 

Caveats: these kinds of results can only be expected with the broadest based index products with the lowest tracking errors. The more exotic the underlying or complex the product is, the greater the variation in returns. Why volatility affects total return is for another article.