Best 3x Leveraged ETFs

Best 3x Leveraged ETFs—TQQQ vs SOXL vs UPRO. All deliver plenty of volatility for traders, but one stands above the others for long-term performance coupled with short-term trading potential—and is perfect for my 9Sig and Income Sig plans.

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Note: The following is not a word-for-word transcript. For that, please see the episode on YouTube.

Since The Kelly Letter launched its 9Sig plan six years ago using ProShares UltraPro QQQ (TQQQ) as its stock fund, the ETF has become the most popular 3x vehicle on the market.

According to the ETF Database, TQQQ’s daily average volume is more than 199 million shares. That’s more than the 81 million averaged by the SPDR S&P 500 Trust (SPY), which is the world’s largest ETF by assets, at $357 billion. TQQQ has only $14 billion. Its relatively low assets but enormous volume show that it’s a favorite among traders, not long-term investors.

The way I use it is a hybrid. It’s a key part of two of my long-term plans, one for growth and one for income. The plans abide by a set of rules based on the fund’s quarterly price change, trading it once per quarter depending on where its price went.

If TQQQ declined a lot, then 9Sig buys a lot. If it declined a little, 9Sig buys a little. It works similarly in the opposite direction. If TQQQ rose a lot, then 9Sig sells a lot. If it rose a little, 9Sig sells a little.

This process of reacting to price change works with all stock funds, not just leveraged ones. I use it on iShares Core S&P Small-Cap (IJR), which is a non-leveraged fund, and also on ProShares Ultra MidCap 400 (MVV), which is a 2x leveraged fund.

A question I receive frequently, and did again last week, is this: Would a broader-based 3x fund be safer than TQQQ?

This is in reference to TQQQ magnifying the daily price change of the Nasdaq 100 (NDX), an index that is heavy into technology stocks. Its top five components by weight are Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Google (GOOG and GOOGL), and NVIDIA (NVDA). Those five stocks alone comprise some 42% of the index. It’s easy to see why the Nasdaq 100 is considered a mega-tech proxy.

Therefore, reason some investors, it’s not as suitable for long time horizons as a broader-based index, such as the S&P 500, which is followed at 3x leverage by ProShares UltraPro S&P 500 (UPRO). Another group suggests that even more focus is needed to really crank up the volatility. For example, a 3x leveraged tech sector fund, such as Direxion Daily Semiconductor Bull 3x Shares (SOXL).

While both UPRO and SOXL would work in my 9Sig plan, TQQQ hits the performance sweet spot. Let’s go through why.

Plenty of Volatility

TQQQ provides plenty of volatility, but some diversification beyond tech, making it less vulnerable to a multi-year single-sector struggle. UPRO isn’t as volatile as TQQQ, making it less useful to a plan driven by higher highs and lower lows, which it exploits in the rules that automate selling and buying such conditions, respectively.

Here’s the price change of the three funds in 2022:

2022 Price Change (%)
– – – – – – – – – – – – – – –
-57.0 UPRO
-79.2 TQQQ
-85.8 SOXL

Some would glance at that and wonder why anybody would ever touch these funds, but if you run a plan that signals buying into such times, those minus signs are not warnings but invitations.

Before moving onto that, notice that all three provide plenty of downside for bargain hunting. Yes, SOXL dove deeper in 2022, but not much deeper than TQQQ and even UPRO went plenty deep enough for bargain hunting. You can see why any of these funds would work in a plan that craves volatility.

Onto why they are good for long-term plans. On top of delivering years like 2022 for packing the stock side of a plan, they deliver rising stretches like the following for harvesting profits:

2019 Through 2021
Price Change (%)
– – – – – – – – – – – – – – –
1,125 SOXL
798 TQQQ
339 UPRO

Now let’s take it all the way back to 2011, the first full calendar year in which all three funds operated. Here’s how they performed from there to the end of 2021:

2011 Through 2021
Price Change (%)
– – – – – – – – – – – – – – –
10,701 TQQQ
8,094 SOXL
2,576 UPRO

These are great tables to show your friends who insist on repeating the canard that leveraged funds don’t work over long time frames.

Try telling that to anybody who bought one of these at the end of 2010 and held it to the end of 2021. SPY’s price change over that time frame came nowhere close: 278%.

The three tables also show why my plans prefer TQQQ. It runs circles around UPRO in the long-term appreciation department, and outperforms SOXL as well. I would characterize it as the most evergreen of the big performers. When stocks head south, it provides a big enough bargain to recharge my 9Sig plan for the next recovery. Maybe not the biggest, but big enough—particularly when combined with its superb long-term return.

I would suggest that the worst choice of these three funds is UPRO. It doesn’t appreciate as much in most time frames, and when it goes through a bear market like the one of 2022, it falls enough to cause despair in anybody who is not comfortable with the way they’re using it. If it’s volatility your plan requires for top performance, then going with higher volatility makes sense.

If you can’t handle a -79% year, you probably can’t handle a -57% one either. A non-leveraged fund or even non-stock fund might be better.

For my 9Sig plan, I’ll stick with TQQQ.

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