Choosing Between Two Leveraged Semiconductor and Broad-Market ETFs: A Risk-Return Analysis

Understanding the Trade-Off: High Returns vs. Stability

When evaluating leveraged ETFs, the fundamental tension between amplified returns and concentrated risk becomes impossible to ignore. The Direxion Daily Semiconductor Bull 3X Shares ETF (NYSEMKT:SOXL) and the Direxion Daily S&P 500 Bull 3X Shares ETF (NYSEMKT:SPXL) exemplify this dynamic in starkly different ways. SOXL emerged as the highest return share over the past year, posting a 38.6% gain through December 18, 2025, significantly outpacing SPXL’s 27.2% performance. Yet this superior return came at a substantial cost: SOXL’s five-year maximum drawdown reached a staggering 90.51%, compared to SPXL’s 63.84% decline during the same period.

Core Mechanics: How These Leveraged Funds Operate

Both Direxion Daily funds employ daily leverage resets to maintain 3x exposure to their respective indices. This mechanism, while simple in concept, carries profound implications for long-term holders. Each trading day, the funds recalibrate their positions to ensure they deliver three times the daily return of their underlying index—whether that move is positive or negative.

The consequence is subtle but critical: over extended periods, particularly during volatile market conditions, the compounding effects of daily resets can cause the fund’s actual long-term performance to diverge significantly from what investors might expect mathematically. This phenomenon, known as performance drift, means that a 3x leveraged fund held for years may not deliver three times the cumulative index return. The effect intensifies during choppy markets with sharp reversals, where the daily reset mechanism locks in losses before subsequent gains can offset them.

Sector Focus: Concentration vs. Diversification

The most glaring structural difference between these funds lies in their underlying holdings and breadth of exposure.

SOXL: A pure-play semiconductor bet with all assets concentrated in technology, spread across just 44 companies. Its three largest holdings—Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), and Nvidia (NASDAQ:NVDA)—represent substantial portfolio weight. Operating for nearly 16 years, SOXL has positioned itself as a direct proxy for the semiconductor industry’s fortunes. The fund’s sharp performance variations reflect the inherent volatility of a sector where a handful of mega-cap names dominate market movements.

SPXL: Draws from the full universe of the S&P 500 (SNPINDEX:^GSPC), distributing holdings across multiple sectors. Technology comprises 36% of the portfolio, with financial services and consumer cyclicals also playing meaningful roles. Nvidia, Apple (NASDAQ:AAPL), and Microsoft (NASDAQ:MSFT) rank among top positions, but they coexist alongside hundreds of other companies spanning different industries. This diversification cushions performance during sector-specific downturns.

Cost Structure and Income Characteristics

Both funds maintain remarkably similar fee structures, making expenses a negligible differentiator. SPXL charges an annual expense ratio of 0.87%, while SOXL comes in slightly lower at 0.75%—a difference of mere basis points that should not drive investment decisions.

Dividend yields tell a different story about their underlying assets. SPXL distributes 0.8% annually, whereas SOXL yields only 0.5%, reflecting the income-generation profiles of their respective sectors. Technology semiconductors, particularly during periods of heavy capital investment like the current AI expansion, tend to retain earnings rather than distribute them to shareholders.

Performance Divergence: A Five-Year Perspective

The five-year investment outcome starkly illustrates the risk profile differences. A $1,000 investment in SPXL would have grown to approximately $3,078, whereas the same amount in SOXL would have reached only $1,280. While SOXL captured superior 12-month returns, SPXL’s smoother long-term trajectory better weathered the extended period, particularly the volatility cycles that occurred between 2022 and 2024.

Assets under management further underscore market preferences: SOXL manages $13.9 billion compared to SPXL’s $6.0 billion, suggesting significant investor interest in concentrated semiconductor exposure during the AI era.

The Artificial Intelligence Factor

The semiconductor sector’s recent ascendancy stems largely from artificial intelligence infrastructure buildout. GPU demand from data centers, cloud providers, and enterprise deployments has driven semiconductor stocks to historic valuations. SOXL provides direct participation in this trend, amplified threefold through leverage.

However, this concentration represents an idiosyncratic bet. If the current AI investment cycle cools, disappoints, or faces regulatory constraints, SOXL’s lack of diversification means the fund would lack offsetting gains from other sectors. SPXL, by contrast, maintains exposure to consumer staples, healthcare, industrials, and other areas that typically weather sector-specific downturns more successfully.

Investment Philosophy: Trader vs. Holder

Critical context: neither fund suits buy-and-hold strategies spanning months or years. The daily leverage reset mechanism and extreme volatility make these unsuitable for passive long-term portfolios. Instead, both are engineered for tactical traders seeking amplified daily or weekly moves, typically within positions held for hours or days.

SOXL appeals to: Traders with strong conviction on semiconductor sector strength, particularly AI-related tailwinds. The highest return share potential attracts risk-tolerant participants betting on continued technology momentum.

SPXL appeals to: Traders seeking broad-market amplification without sector-specific concentration risk. The reduced maximum drawdown and more stable multi-year trajectory attract those prioritizing resilience over pure return magnitude.

Key Metrics Comparison

Bottom Line: Risk Tolerance Determines Choice

SOXL delivers the highest return share performance over shorter timeframes through concentrated sector exposure and 3x amplification, but sacrifices stability and introduces substantial drawdown risk. SPXL sacrifices some upside potential in exchange for broader sector diversification and demonstrably smoother performance across market cycles.

The decision ultimately hinges on three factors: investment time horizon (shorter favors tactical positioning, not long-term holding), conviction level on semiconductor sector momentum, and personal risk tolerance for 60%-plus portfolio declines. Both funds reset leverage daily, amplifying intraday movements significantly. For most investors, treating these as short-term tactical tools rather than core portfolio holdings remains the prudent approach.