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Wall Street's Levered ETF Boom Is Near-$1 Billion Money Spinner
Wall Street's Levered ETF Boom Is Near-$1 Billion Money Spinner

Yahoo

time29-01-2025

  • Business
  • Yahoo

Wall Street's Levered ETF Boom Is Near-$1 Billion Money Spinner

(Bloomberg) -- A popular ETF trade beloved by market speculators is fast turning into a billion-dollar revenue generator for nimble-footed financial firms. Trump's Federal Funding Pause Threatens State Financials NYC Subway's Most Dangerous Stations Are on Lexington Ave. Line Housing Aid Uncertain After Trump's Spending Freeze Memo Texas HOA Charged With Discrimination for Banning Section 8 Renters Newsom Enlists Magic Johnson, Guggenheim CEO for LA Rebuilding Traders have been diving into leveraged exchange-traded funds, a subset of a derivatives-enhanced products, offering to amp up the daily moves of the world's most popular stocks and indexes. That's enriched the firms behind the majority of these ETFs. They netted around $940 million in revenue in 2024, according to Bloomberg Intelligence, which used napkin math to multiply their assets by their fees. That's a record 37% jump, beating last year's all-time high. The six firms that dominate the arena are: Direxion, ProShares, Tidal Investments, GraniteShares, Tuttle Capital Management and AXS Investments. Leveraged ETFs were in the spotlight on Monday when China's answer to ChatGPT, DeepSeek, sparked a selloff in technology stocks. Stock market heavy-weight Nvidia Corp. saw nearly $600 billion of its market cap wiped out in a single day. As a result, momentum-chasing day traders who pounced on a trio of Nvidia-focused funds collectively saw about $2 billion in value shaved off during the trading session, BI-compiled data show, while the leveraged ETF complex erased around $10 billion as a whole. It could have been a bitter lesson for day traders that embraced the category. Instead, traders plowed another $1 billion into the GraniteShares 2x Long NVDA Daily ETF (ticker NVDL) — its biggest one-day inflow on record — after eight straight days of outflows. That's as the ETF tumbled a record 34% Monday. The influx 'speaks to investors willingness to react and buy the dip even on the most volatile of days,' said Will Rhind, the chief executive officer of GraniteShares. Industry critics have long worried that many investors might not read the fine print and risk losing money in the process. Such products are often meant for active traders who want to bet on and against an asset's performance for no more than a single day, as these funds typically veer off course when tracking shares over a longer period. Technical risks like volatility drag — when big valuation swings diminish returns — and the erosion of net-asset value are not talked about enough when it comes to promoting these products, according Jane Edmondson, head of index product strategy at TMX VettaFi. 'A lot of retail investors do not understand the decay effect tied to daily rebalancing which causes return erosion over time,' she said. 'This side-effect of leverage can cause quite a lot of dispersion relative to the underlying index.' But issuers defend their popularity. As one of the more long-standing firms, Direxion noted it has a dedicated education section on its website, while Tuttle Capital head Matthew Tuttle said such offerings help clients 'manage risks and generate returns.' The data suggest that the majority of the issuers derived 80% or more of their revenue from the complex ETFs, with Direxion as the most reliant. Calculations by BI show that the firm generated $396 million in ETF revenue last year, with a whopping 98.3% coming from its suite of leveraged and inverse ETFs. The high-octane offerings surged in popularity over the past few years, helped by the relentless bull market. The floodgates can be traced back to 2019 when US regulators eased constraints for launching new funds, followed by 2020 when they no longer considered some leveraged ETFs to be 'complex.' 'There are dangers to any products you own. You just have to be aware of what you are holding,' said Mohit Bajaj, director of ETFs at WallachBeth Capital. But 'the leverage ETF issuers have done a great job of fulfilling a demand in the marketplace.' The transition of leveraged ETFs from niche product to the mainstream is clearly a boon for issuers, according to BI analysts Eric Balchunas and Andre Yapp. 'Leveraged ETFs are arguably a good business to be in because there are products for both up and down markets and the big, low-cost issuers don't compete in the category,' they said. It's also a plus that 'the products are agnostic to bull or bear market conditions.' Whether or not these funds are good for risk-seeking investors remains up for debate. Matt Markiewicz of Tradr ETFs acknowledges there's a learning curve with any new product, but 'as investors' palates become more sophisticated and they learn how and why these strategies could be useful, we expect appetite to rapidly grow.' What America's Tech Billionaires Really Bought When They Backed Donald Trump Musk Pitches New Narrative as Tesla Sales Fall Indy Pass, the Anti-Vail Seasonal Ski Ticket, Is Gaining Fans Forget Factories, Small US Towns Want Buc-ee's Gas Stations The CDC Won't Give the Public a Full Picture of Fertility Treatment Risks ©2025 Bloomberg L.P.

Nvidia-ETF Complex Faces Moment of Truth as Levered Bets Plunge
Nvidia-ETF Complex Faces Moment of Truth as Levered Bets Plunge

Yahoo

time27-01-2025

  • Business
  • Yahoo

Nvidia-ETF Complex Faces Moment of Truth as Levered Bets Plunge

(Bloomberg) -- Day traders spent last year shoving billions of dollars into leveraged Nvidia Corp. ETFs in a bid to amp up their gains on the hottest stock on the planet. Now those wagers are in peril. What Happened to Hanging Out on the Street? Vienna Embraces Heat Pumps to Ditch Russian Gas Billionaire Developer Caruso Slams LA Leadership Over Wildfires How Sanctuary Cities Are Preparing for Another Showdown With Trump Hoboken PATH Station Will Close for Almost a Month on Jan. 30 Get-rich-quick funds that offer to amp up returns in the chipmaker started the week with a record rout, after China's DeepSeek sparked a selloff in technology stocks. As the AI firm sank, a trio of Nvidia-focused funds — led by the GraniteShares 2x Long NVDA Daily ETF (ticker NVDL) — collectively incinerated about $2 billion in value, the data show. Leveraged ETFs as a whole were hit by a $10 billion loss in Monday trading, according to an analysis by Athanasios Psarofagis at Bloomberg Intelligence. Egged on by expectations that the era of US tech innovation will go unchallenged, momentum-chasing day traders have pounced on leverage in the ETF world and now risk confronting their biggest test of the bull market cycle, if the DeepSeek hype is vindicated. Leveraged ETFs are also making their presence felt across the broader equity marketplace as their assets hit records. Nomura Holdings Inc. projects that such products — concentrated in the semiconductor and megacap tech industries — will sell about $22 billion on Monday in order to rebalance their holdings. The market meltdown is rocking speculative trades untied to the AI theme, including the cryptocurrency complex, exposing how Wall Street euphoria has pumped up risky assets of all stripes. While inverse-Nvidia ETFs also exist, the majority of flows have in recent years gone toward their bullish counterparts. NVDL has grown to become one of the largest leveraged-up ETFs, boasting about $5 billion in assets, up from $200 million at the start of 2024. 'It absolutely shows the perils of going all in on one bet,' said Matt Maley, chief market strategist at Miller Tabak + Co. 'More importantly, is shows how dangerous it can be to use leverage on those kind of bets. This is the type of thing that could create some forced selling at some point going forward.' Traders had collectively added about $4 billion to the three Nvidia-focused funds last year — which also include the Direxion Daily NVDA Bull 2X Shares (NVDU) and the T-Rex 2X Long NVIDIA Daily Target ETF (NVDX) — as they chased the surge in shares of the chipmaker, which soared 345% in that span to at one point become the most valuable company in the world. On Monday, the GraniteShares ETF fell a record 35% on Monday morning, as did the Direxion Daily NVDA Bull 2X Shares and the T-Rex 2X Long NVIDIA Daily Target ETF. Bullishness on Nvidia's ability to power the AI revolution had helped fuel a run-up in the stock market in recent years, with investors betting that the new technology could streamline many business processes, among other things. It also helped power a boom in other areas of so-called disruptive innovation, with companies and asset classes even tangentially related to AI — including quantum computing and cryptocurrencies — benefiting from a deluge of investor cash. But the sudden crop-up of DeepSeek's AI model — which over the weekend rose to the top of Apple's app-store charts — had analysts saying that it presented a valid contender to models like OpenAI and others, which are costlier to run. The tech-heavy Nasdaq 100 slid nearly 4% at one point, its worst day in more than a month. A number of sectors and industries were caught up in the selloff, with tech losing more than 4%. A levered semiconductors ETF that trades under the ticker SOXL lost 22% at one point, the most since September, and a number of cryptocurrency-based funds, including those focused on Bitcoin or Ether, were among the biggest losers among all ETFs, data compiled by Bloomberg show. 'Most leveraged ETFs amplify daily price returns — and whether Nvidia still has room for growth or not, it will have unpredictable daily price swings,' said Roxanna Islam, head of sector and industry research at TMX VettaFi. 'Daily price movements are often skewed by unpredictable external factors (like today's news with DeepSeek) and don't always follow fundamentals, so putting large amounts of cash into leveraged ETFs can be very risky for traders.' There are signs that some investors were cautious with their AI investments to start the year, with the leveraged Nvidia ETFs NVDL, NVDX and NVDU seeing outflows totaling more than $1 billion, even amid a gain of 6% for Nvidia shares through Friday. The majority of that sum came from NVDL, from which traders yanked roughly $960 million year to date, the second-largest outflow amid all leveraged ETFs tracked by Bloomberg. Meanwhile, funds that aim for the inverse of Nvidia's performance benefited on Monday. The T-Rex 2X Inverse NVIDIA Daily Target ETF (NVDQ) and the GraniteShares 2x Short NVDA Daily ETF (NVD) each rose 36% in their best-ever performances for a single session. 'The AI industry is still in a relatively nascent stage, and while long-term prospects generally still look good, valuations, investor sentiment, and global competition have contributed to uncertainty behind Nvidia, Magnificent 7 names, and other domestic tech stocks,' added TMX VettaFi's Islam. 'While I don't think there will be a significant long-term shift in the market, it is an important lesson to remember that these stocks aren't indestructible.' --With assistance from Sam Potter. What Trump's Tech Billionaires Are Buying Forget Factories, Small US Towns Want Buc-ee's Gas Stations The CDC Won't Give the Public a Full Picture of Fertility Treatment Risks Elon Musk's Inaugural Highs (and Lows) How Kendrick Lamar Turned Beef With Drake Into Music Superstardom ©2025 Bloomberg L.P. Sign in to access your portfolio

Nvidia-ETF Complex Faces Moment of Truth as Levered Bets Plunge
Nvidia-ETF Complex Faces Moment of Truth as Levered Bets Plunge

Bloomberg

time27-01-2025

  • Business
  • Bloomberg

Nvidia-ETF Complex Faces Moment of Truth as Levered Bets Plunge

Day traders spent last year shoving billions of dollars into leveraged Nvidia Corp. ETFs in a bid to amp up their gains on the hottest stock on the planet. Now those wagers are in peril. Get-rich-quick funds that offer to amp up returns in the chipmaker started the week with a record rout, after China's DeepSeek sparked a selloff in technology stocks. As the AI firm sank, a trio of Nvidia-focused funds — led by the GraniteShares 2x Long NVDA Daily ETF (ticker NVDL) — collectively incinerated about $2 billion in value, the data show. Leveraged ETFs as a whole were hit by a $10 billion loss in Monday trading, according to an analysis by Athanasios Psarofagis at Bloomberg Intelligence.

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