If the S&P 500 historically generates total returns of about 10% annually, wouldn't some investment vehicle that amplifies its returns be even better? That's exactly what the ProShares UltraPro S&P 500 ETF (UPRO 0.20%) does.

This ETF aims to triple the daily returns of the S&P 500, so if the benchmark index goes up 1% tomorrow, you can expect the ProShares UltraPro S&P 500 ETF to rise by about 3%. It achieves this by using financial derivative instruments such as futures contracts and stock options.

However, it's important to mention that while this ETF is certainly capable of producing amplified returns in good times, it isn't even close to being a surefire way to get market-beating performance in your portfolio over the long run. In other words, if the S&P 500 goes up by 20% over the next two years, that doesn't necessarily mean you'll get a 60% return from this ETF.

Let's take a closer look at how this leveraged ETF works, the pros and cons, its long-term performance history so far, and whether it could be a good fit for you.

Image source: Getty Images.

Performance history of UPRO

Of course, no analysis of an ETF would be complete without taking a look at its performance, so let's start there, as it sheds light on many of the ETFs pros and cons. The UltraPro S&P 500 ETF has been trading for a little over 15 years, so here's how it's done versus the S&P 500 over various time periods, compared with the non-leveraged Vanguard S&P 500 ETF (VOO 0.35%):

Data source: yCharts.

There are a few key things to keep in mind while analyzing the performance. First, this ETF has mostly existed in bull markets, which has certainly helped its long-term performance. The numbers would tell a very different story if it had started trading in, say, 2007, before the financial crisis hit.

Second, notice that so far in 2025, the UltraPro S&P 500 ETF has underperformed the S&P 500 even though the benchmark index is higher for the year. That's the mathematics of daily leveraged returns, which I'll discuss more later.

Third, and this isn't on the chart, is that in bad times the leverage can really work against you. For example, at the onset of the COVID-19 pandemic, the S&P 500 fell by about 30% from its prior highs. The UltraPro ETF fell by nearly 80%. Be prepared for things like this if you invest.

Reasons to consider the ProShares UltraPro S&P 500 ETF

Like any ETF, there are pros and cons to consider, so let's look at them, starting with the positives:

• Performance potential: Most obviously, a triple-leveraged ETF could deliver stronger returns than a standard ETF if the underlying index performs well. The years this ETF has existed include the longest bull market in modern history, and this is a big reason it has performed so well.
• Easier than using leverage on your own: You could set up an amplified bet on the S&P 500 on your own using things like options and futures contracts. But it can be quite complex to juggle expiration dates, leverage ratios, and options pricing. By purchasing shares of a leveraged ETF, the fund's managers do it for you, and you can invest just as easily as buying any stock.

Reasons to be cautious

Before investing there are a few potentially negative things to keep in mind:

• Volatility: Leveraged ETFs, by definition, are more volatile than their unlevered counterparts. Even in good market environments, it's important to be prepared for significant price swings.
• Fees: The more specialized an ETF is, the higher the investment fees typically are. The UltraPro S&P 500 ETF has a 0.91% expense ratio, which is significantly higher than the average index fund.
• Daily compounding: Perhaps most importantly, the mathematics of daily compounding can produce unexpected returns over the long run. Notice that even if you include fees, none of the long-term returns of the ETF are exactly triple the return of the index. That's because this fund isn't designed to replicate the long-term performance of the S&P 500. It's entirely possible that the leveraged ETF could produce negative returns over a period where the S&P 500 is higher. In fact, most leveraged ETFs even have a disclaimer somewhere in their investor materials that makes it clear that they are intended for short holding periods.

The bottom line

Of course, there's no such thing as a perfect ETF for everyone – there are hundreds of ETFs in the market that could be worth a closer look for certain investors.

Having said that, it's tough to justify the ProShares UltraPro S&P 500 ETF as a long-term investment. The daily leverage dynamics give it more downside risk than upside potential, and that's especially true in times of economic and political uncertainty.

This ETF, and other leveraged ETFs, are best used for short-term purposes and in limited quantities. For example, if you think the S&P 500 has been the victim of a knee-jerk downward reaction, as we saw when the president announced his reciprocal tariffs in April, it could be a good way to bet on a short-term mispricing in the market.

However, the key word in that last sentence is "bet," because that's exactly what you're doing when you invest in a triple-leveraged ETF. Things can go wrong quickly, so it's important to have a clear plan going in, and to limit your position size to money you could comfortably afford to lose.