Newfound Research‘s Corey Hoffstein points out to his readers that different leverage funds may give you an incorrect impression that the cost of one is lower than the other.
Leverage ETFs are currently the rage because in my opinion, it allows people to easily speculate with leverage in some stuff they think would go up and make a lot of money.
Corgi funds launched a lot of leverage ETFs and Corey highlighted the VOOX as an example.
VOOX gives you a 50% loan-to-value that boost your exposure. What Corey would like us to note is that the expense ratio looks very low at 0.20% p.a.
This is certainly lower than the ProShares Ultra S&P 500 (SSO), which also gives you a 50% loan-to-value that boost your exposure.
But SSO looks much more expensive at 0.87% p.a.
Given this, most may choose Corgi’s implementation but Corey points out that when there is a difference in implementation, some may need to disclose some costs while others are not obligated to display some costs.
VOOX implements its 50% loan-to-value to give you 200% leverage exposure via swaps. The swap costs are not disclosed.
In contrast SSO holds 70% of the 200% exposure as physical S&P 500 stocks, so SSO’s leverage exposure is 130%.
If you wisht to know what are the costs that should be factored into an investors return it is something like this:
Investor’s net return = How many times leverage over equity x [S&P 500 return – dividends] – expense ratio – financing cost.
So for VOOX it will be roughly like:
Investor’s net return = 2 x [S&P 500 return – dividends] – 0.2% – financing cost.
While SSO it will be roughly like:
Investor’s net return = 2 x [S&P 500 return – dividends] – 0.87% – financing cost.
SSO’s semi-annual financial statements page 107 will give us some clues how much SSO is paying in financing cost:
The borrowing cost is usually SOFR + % spread. If we compare the rate then at 30th Nov 2025 then the spread is about 70 bps.
| Counterparty | Rate Paid | Implied SOFR + spread |
|---|---|---|
| Bank of America NA | 4.89% | SOFR + ~0.77% |
| Societe Generale | 4.89% | SOFR + ~0.77% |
| Barclays Bank PLC | 4.84% | SOFR + ~0.72% |
| UBS AG | 4.81% | SOFR + ~0.69% |
| BNP Paribas | 4.79% | SOFR + ~0.67% |
| Citibank NA | 4.79% | SOFR + ~0.67% |
| Morgan Stanley & Co. Int’l plc | 4.74% | SOFR + ~0.62% |
| Goldman Sachs Int’l (S&P 500 leg) | 4.64% | SOFR + ~0.52% |
| J.P. Morgan Securities, LLC | 4.64% | SOFR + ~0.52% |
| Goldman Sachs Int’l (SPDR ETF leg) | 4.55% | SOFR + ~0.43% |
Let’s say at the same point the total finance cost (SOFR + spread) is 4.5%.
Since VOOX is wholly using swaps, then its financing cost is 4.5% x 2 = 9%.
SSO is 4.5% x 1.3 = 5.85%.
So if we add the total expense ratio and financing cost:
The conclusion would be rather different!
But I guess to some of us, even knowing that we have to factor in the borrowing cost is a big deal!
Suppose the S&P 500 lost 10%. This means we incur a 20% loss (technically the number will be different since returns are compounded daily) AND this 9.2% or 6.7% financing cost.
Do also note that SOFR changes as interest rate changes. This is a chart of the SOFR and 3-month US Treasury Rate:
You can see how SOFR and 3-month US Treasury tracks each other.
The important attribute to help decision making is to think your cost is a short-term interest rate and leverage. SOFR or not doesn’t matter.
But its important to note how implementation can change the whole picture.
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