Comparing Futures Total Return to Index Total Return for S&P 500 from 1988 to 2022

Dear Forum

I found some time to calculate the total return of futures on the S&P 500 and compare it to the total return of the S&P 500 and the return on USD as a borrowing benchmark.

tl;dr: Futures are likely better for leverage. Considering the total return of S&P 500, I compute an equivalent borrowing cost of the risk-free rate +0.85%. But there are no withholding taxes on futures, whilst there are PILs for buying on margin.

Data Source

I gathered 3 series of data:

  • S&P 500 futures spot prices (daily): From this github repo by Robert Carver. He has written a full blown open source trading system in Python including using data to automatically execute trades on IBKR. I’m not sure if the data itself is SP or ES futures, but likely ES, since I didn’t find SP futures on IBKR. Also it shouldn’t matter, since the spread is virtually 0 (mostly just one tick) and it would be easy to do arbitrage.
  • S&P 500 total return (daily): Yahoo with the ticker ^SP500TR.
  • Returns on USD (monthly): Portfoliovisualizer’s CASHX. I couldn’t find an authoritative source, but I believe it is 1-month Treasury Bills.


To produce an adjusted closing price series for the futures I first calculated the factor of selling the front-month contract and buying the next back-month contract. This factor represents how many percent less (more) contract you hold after executing the rolling. I started with 1 contract and multiplied it with the factor each time I rolled. For rolling I took the last prices on the last trading day of the front-month contract. There 4 expiry dates and contracts per year. To finally get the adjusted price I just multiplied the amount of contracts left with the price of the front-month contract on that date and time.

Then I combined this with the data of SP500TR. I removed all dates that didn’t have complete data and got a composite series from 1988-01-04 to 2022-12-29. I normalized the price data so that each series starts with 1. The closing of SP500TR and my futures series can diverge by some hours. This error has a maximum of a daily movement, which will be greatly diminished by over 30 years when annualized. To double check I have additionally calculated my results by each year.

The factor of dividing the returns of the SP500TR by the returns of futures series can be interpreted as financing cost of buying the S&P 500 with borrowed money. This was then compared to the return of ultra-short-term treasury bills. For the yearly calculation, I annualized the return from 21 days around the start of the year to the 21 days around the end of the year, and took the median of the implied financing cost.


This generates the following table for financing costs and their difference:

Year CASHX Futures Δ
1988 6.80% 6.56% -0.24%
1989 8.61% 9.00% 0.39%
1990 7.89% 8.92% 1.03%
1991 5.71% 6.42% 0.71%
1992 3.57% 3.99% 0.42%
1993 3.05% 3.41% 0.36%
1994 4.20% 4.19% -0.01%
1995 5.71% 6.26% 0.55%
1996 5.17% 5.90% 0.73%
1997 5.22% 6.12% 0.90%
1998 4.97% 5.78% 0.81%
1999 4.77% 5.55% 0.78%
2000 5.99% 7.23% 1.24%
2001 3.70% 4.95% 1.25%
2002 1.65% 2.13% 0.48%
2003 1.04% 1.30% 0.26%
2004 1.32% 1.53% 0.21%
2005 3.14% 3.49% 0.35%
2006 4.82% 5.21% 0.39%
2007 4.56% 5.53% 0.97%
2008 1.53% 3.67% 2.14%
2009 0.16% 0.73% 0.57%
2010 0.14% 0.33% 0.19%
2011 0.07% 0.40% 0.33%
2012 0.08% 0.27% 0.19%
2013 0.05% 0.62% 0.57%
2014 0.03% 0.58% 0.55%
2015 0.05% 0.62% 0.57%
2016 0.30% 0.51% 0.21%
2017 0.88% 1.47% 0.59%
2018 1.90% 2.44% 0.54%
2019 2.13% 2.16% 0.03%
2020 0.44% 0.64% 0.20%
2021 0.04% 0.55% 0.51%
2022 1.82% 1.89% 0.07%
(Median) Δ
2.87% 3.41% 0.51%
2.87% 3.42% 0.52%

We can see that both methods lead to very similar results:

  1. Smoothing over data by calculating 21 yearly returns, and taking the median of the resulting implied financing cost for each year. Then taking the median from the resulting yearly deltas for the final annual delta.
  2. Directly calculating delta from the difference between first and last adjusted price.

Using averages instead of medians makes nearly no difference and changes the delta to 0.55%.


There are some spikes with the deltas around some very specific dates 2008, 2000, 2001, 1990. For the latest 3 I could imagine that the reason is insecurity about financial market stability.

There are also some very low deltas: 2022, 2019, 1994, 1988. I tried explaining it with rising interest rates (going long futures means being short bonds with duration equal to time to expiry). But it doesn’t fit.

Now should you buy the S&P 500 with futures, or should you buy ETF on margin?

In addition to the calculated delta, having futures positions means you have to put up collateral. At IBKR that means cash and it also doesn’t pay any interest. As of today, the initial margin requirement is 13693.95 USD for a contract size of 216500 USD. The contract size is calculated from multiplying the underlying by the multiplier, so 4330 * 50 USD. So that blocks about 6.33% of your allocation to the S&P 500. Taking IBKR’s USD borrowing benchmark of 5.38% that means an additional annual opportunity cost of 0.34%. Of course these numbers are subject to change, but I think we are in a rather normal market, so they could be somewhat representative. Also your opportunity could be something else than getting the risk-free rate.

This means that you can buy the S&P 500 with total return for about the risk-free rate +0.85%. You could say, that with over a million USD you can get something better (+0.75%) at IBKR. But futures return is not subject to withholding taxes. It also does not subject itself or any other distribution paying securities to 30% unrecoverable withholding tax, because your broker lent 140% of your debit balance and gives you PILs (payment in lieu) instead of ordinary dividends.

For over 50 million USD you can borrow for +0.50%. Before you get average anywhere close, you will be passing 100 million USD. There is bound to be more efficient schemes than being an IBKR customer at that size.

I say futures win. But I would be very happy to have some paper to confirm or invalidate my results.

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How well could you understand this?

  • fully
  • almost
  • partially
  • some words
  • none
0 voters

Can you elaborate how payments in lieu are disadvantageous?

Also how big is the delta actually (between futures and margin)?

Currently I am running a slightly levered 1.x only VT portfolio. :slight_smile:

Okay so read up on everything.

Would it work the following way?

Ordinary dividend (with w8 Ben):

→ IBKR withhelds 15 % → get rest back through da1

Payment in lieu:

→ IBKR withhelds 30% → maybe get 15% back from tax office but this has been rejected before?

If this is true then this would be a further performance drag on a leveraged portfolio of ~0.6% based on the current dividend of VT of 2% right?

No it’s even worse:
Ordinary dividend (with W-8 BEN):
→ IBKR withholds 15% (if your dividends are of US origin) → If you would pay more in Switzerland, you will just pay the difference to Switzerland, else nothing
Payment in lieu:
→ IBKR withholds 30% (even on non-US securites) → You pay your full taxes on the rest to Switzerland.

The evil thing is that they can choose which 140% of your debit balance (Portfolio - NAV) they are going to lend at any time. So if for any reason they choose to always lend your assets when they go ex-dividend, then you will receive PILs on everything (given not more than 140% go ex-dividend at the same time). So your drag can be a maximum of 30% of all dividends received. This can be more or less than 2% * 30%, depending on what else you hold.

When assuming you hold only VT then the drag is ~2% * 30% * 140% = ~0.84%. That is if your leverage is below 100% / 40% = 2.5x. Because after, the 140% is bigger than your portfolio and they can’t lend what is not there.

I mean, I wouldn’t hurt them to do the exact opposite and try to first lend assets not going ex-dividend. I could even imagine paying them the lending rate they would otherwise get from the market. Heck, make it double, it’s just one day.

Something is wrong. I had rechecked my statements from when I had Payments in lieu of dividend on US ETFs and it’s exactly as I had remembered: the withholding tax is 15%. Another point is that technically you are not allowed to get this tax back because you haven’t paid it.

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Hm, interesting, thank you. So at least IBKR thought that the dividend rates of the treaty between Switzerland and the USA apply. But our thread about the “Tax treatment of IB Stock Yield Enhancement Program” had examples of Swiss cantonal authorities rejecting such claims. Any chance this is a mistake by IBKR?

When you say, you haven’t paid those 15%, what do you mean? IBKR surely doesn’t withhold them for themselves. If you pay them as withholding tax to the US and the treaty applies, you should get some foreign tax credit.

I refer to what was written in the linked thread and in other places. The logic of tax authorities is following: you haven’t received dividend minus WHT, but an equivalent amount in cash. The dividend was received by the account that had borrowed the security. Then it went into a discussion that after “ex cum” scandal there is no surprise in such treatment.

I just checked my paper trading account at IBKR.

Activity Date 2023-09-20 2023-09-01
Record Date 2023-09-21 2023-09-05
Quantity -57325 2592
Dividend 0.17399 0.28858
Dividend Total -9973.97675 747.99936
Actual PIL -9973.69000 748.00000

Receiving PIL for TLT in full is probably due to IBKR not applying tax status to this paper trading account, or TLT being interest distributions from US bonds and that classification passing through to the PILs. But for the short position (SPXU) I would expect to pay PIL in full.

Imagine an ETF holding ultra-short-term treasuries like SGOV. Let’s say we receive a distribution of 10% from the interest. The fund will drop exactly by the amount paid out (plus minus spread). That is because it is an ETF and premium can be arbitraged directly. Especially so, because there is about no volatility in the underlying. If we now short that ETF and didn’t have to pay full PIL we could pocket whatever we didn’t pay. Disregarding which rate we should apply (30%, 15%, something else?), we could get about 10% * 30% = 3% return for each day we make such trades. This of course does not work like that.

But if you as a lender receive 15% less even though the borrower paid in full, someone has those 15%. This someone is most likely the IRS. So yes those are withholding taxes.

Also think it unlikely that IBKR as a middleman is the subject of those taxes. You normally can not receive money tax free, so they can’t just give you 85% tax free after paying the taxes themselves. Else someone would build a broker that never earned any money because they always lose 100% of the PILs received to giving all to the borrower. The IRS will give every cent of taxes withheld back to this unprofitable company. You the borrower would walk away with 100% tax free. This also does not work like that.

tl;dr: Yes, the difference between PILs received and ordinary dividends before taxes must also be taxes paid by you.

EDIT: Reason of TLT PIL in full

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TLT is bonds, there is no withholding tax for interest.

No, wait that doesn’t make sense. It was PIL. That would mean that the original type of distribution would apply to the PIL, too.

are you sure about that? or do you mean it is not taxable under the double taxation agreement?

No treaty needed. The term is “portfolio interest exemption”. Have a look at this explanation. TLT seems to be a transparent wrapper of US (treasury) bonds.

Hey guys,

just checked for me with VT only (leveraged to ~1.3).

IBKR deducts 15% only.

However, it seemed they have loaned out a bit more than the actual amount so it amounts to a bit more than that.

TLDR: There is a bit of a drag that amounts to 15% or slightly larger of dividends when leveraging with portfolio margin (Unless the tax office magically accepts this > Let’s see in 2-3 years with tax at source :smiley: )

How do you guys handle different currencies (i.e. my loan is in francs but assets in USD)?

Are those dividends marked as PIL?

They can lend 140% of your debit balance.

I was just thinking about this too. Whilst a fully paid kg of gold is just that regardless of the quoting currency, leverage is a bit different.

For buying with a margin loan the quoting currency again doesn’t matter, but you will be short in something. That can be USD, CHF, or some other currency. Whilst different currency spot prices plus interest should be equal in expectation, short-term and sometimes not-so-short-term events cause fluctuation. If you are short CHF and people suddenly seek a safe harbor, you can bet that being short USD would have hurt less. Since you were long gold, which also might have become more valuable, you might not have lost anything. But if you had been short USD you would have made some gains.

For long futures it is different. You are short the quoting currency including its interest. You could diversify that by entering some currency futures position. Gold/USD + USD/CHF = Gold/CHF

Now, should you diversify your short currency exposure? In stocks, if you know nothing, buying the whole market is a good answer. But if the same holds true with currencies, I don know. What would be the correct market allocation? GDP?

And there possibly other considerations: IBKR gives bad spreads on small borrowing balances per each currency.

Also I found some paper “Futures Are Still on a Roll With the Buy-Side” by Aite available through CME Group. It compares replication with ETFs vs futures.

They calculate a fiancing spread quite a bit lower than mine from 2002 to 2012 (-0.02%) on page 19. I wonder where the difference comes from. It must be something systematic, since my curve is similar to theirs just higher. Random bad rolls should produce a different curve.

Yes dividend are marked as PIL!

Where is the 140% defined? (This is related to having a portfolio margin and not the stock yield enhancement right-> I disabled the later since it barely yielded any interest)

Will write up a bit more for my thinking re currency risks soon.

Why doesn’t the quoting currency of the margin loan matter?

“SEA Rule 15c3-3 and Related Interpretations”, but the search engine of your choice will help you for less legalese. And no, IBKR’s SYEP is about allowing them to lend your fully paid securities.

The quoting currency of what you buy with your loan doesn’t matter, it never does. On the other hand, what currency you owe them matters very much.