Futures vs ETF: for macro assets

We examine ETF vs Future strategies as means to achieve some exposure to underlying assets.

Replicating ETF Returns with Futures and T-bills

ETFs like SPY (S&P 500) and GLD (gold) deliver an expected return $\mu$, including capital appreciation and dividends for SPY (1.5% yield) or price appreciation for GLD. Futures on these assets, such as E-mini S&P 500 (ES) or COMEX Gold (GC), yield a return of $\mu - r$, where $r$ is the risk-free rate (4.5% T-bill yield in 2025). To replicate the ETF’s return $\mu$, an investor can combine futures with T-bills, leveraging the collateral’s yield to offset the futures’ cost. For the S&P 500:

Futures Position: 4 ES contracts (USD1,000,000 notional, USD60,000 initial margin) to achieve ~18% volatility. T-bills: USD940,000 (remaining capital) at 4.5% yields USD42,300/year. Margin Cost: Interactive Brokers charges ~6% (4.5% + 1.5%) on USD60,000, costing USD3,600/year. Net Return: The futures return $\mu - r$, plus T-bill yield, minus margin cost:[\text{Total Return} = (\mu - r) + 4.5% \cdot \frac{940,000}{1,000,000} - 0.36% = \mu + 3.87%]

For gold:

Futures Position: 7 GC contracts (USD1,400,000 notional, USD84,000 initial margin) for ~21% volatility. T-bills: USD916,000 at 4.5% yields USD41,220/year. Margin Cost: 6% on USD84,000 costs USD5,040/year. Contango: Gold futures’ 4.5% contango (~USD63,000 on USD1,400,000) is offset by T-bill yield. Net Return:[\text{Total Return} = (\mu - r) + 4.5% \cdot \frac{916,000}{1,000,000} - 0.504% = \mu + 3.62%]

Both strategies replicate $\mu$ with additional yield (3.87% for S&P 500, 3.62% for gold) after costs, surpassing ETF returns due to T-bill income, though futures require managing leverage and periodic rollovers.

Dividend vs. Capital Gains Tax Choice

Foreign investors in Singapore, Hong Kong, Panama, or Dubai face a 30% U.S. withholding tax on ETF dividends but 0% tax on capital gains and T-bill interest in their home jurisdictions. This tax structure significantly impacts the choice between ETFs and futures. For SPY (S&P 500 ETF, 1.5% dividend yield, 0.0945% expense ratio):

Dividend Income: USD1,000,000 × 1.5% = USD15,000/year. Withholding Tax: 30% × USD15,000 = USD4,500. Expense Ratio: 0.0945% × USD1,000,000 = USD945. Net Return: $\mu - 0.45%$ (dividends after tax) - 0.0945% = $\mu - 0.5445%$.

GLD has no dividends, so its return is $\mu - 0.4%$ (expense ratio). Futures, however, generate returns via capital gains (tax-free) and T-bill interest (tax-free). For S&P 500 futures, the net return is $\mu + 3.87%$ (as above), and for gold, $\mu + 3.62%$, with no U.S. withholding tax. The 30% dividend tax on SPY reduces its after-tax return by ~0.45% annually, while futures avoid this entirely, making them more tax-efficient for S&P 500 exposure. For gold, futures are also preferable due to higher net yield from T-bills compared to GLD’s 0.4% cost. In conclusion, futures with T-bills not only replicate ETF returns but also enhance them through collateral yield, offering a tax-advantaged strategy for foreign investors in these jurisdictions.

Future and ETF for main Assets

We show a below table for the main assets that can be traded using futures or ETF. The relevant fees and bid/ask were estimated by a LLM search.