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A risky corner of the stock market has boomed in 2024 amid another year of stellar gains.
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Traders have piled into leveraged single-stock ETFs, seeking to amplify returns on popular names like Nvidia.
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These types of ETFs have attracted more than $20 billion in assets in 2024.
While the stock market was an early frontier of the gambling craze that gripped America in 2024, investors have driven a boom in a relatively new kind of investment product that can amplify gains — and losses — in a single name.
Enter leveraged single-stock exchange-traded funds.
Since their introduction in the early 1990s, ETFs have been groundbreaking in offering the characteristics of a mutual fund — owning a basket of diversified stocks — but offering the daily trading liquidity of a single stock.
But even after 30 years, the humble ETF is seeing fresh updates that cater to investors with a strong appetite for risk.
Instead of owning a basket of stocks, single-stock ETFs track the price of one stock, which the fund will try to juice returns on by levering up.
“These are vehicles that mass retail has never had the ability to trade before, until now,” Todd Sohn, an ETF specialist at Strategas told Business Insider.
The GraniteShares 2x Long NVDA Daily ETF seeks to deliver double the move of Nvidia’s daily price fluctuations.
On Friday, Nvidia stock jumped about 2.5% amid a broader market rebound, while shares of the 2x Nvidia ETF returned nearly 5%. Year-to-date, the 2x Nvidia ETF is up 346%, compared to a 170% gain for the stock.
“Traders are looking to implement high-conviction ideas through them,” Sohn said.
Investors are pouring billions of dollars into these funds, making for some highly successful ETF launches in recent months.
That 2x Nvidia ETF has attracted more than $5 billion in assets, while other popular leveraged ETFs tracking stocks like MicroStrategy and Coinbase have each attracted well over $1 billion in assets.
That’s a big deal for the ETF space, where the breakeven point for most ETF products is around $50 million in assets, according to white-label ETF provider Alpha Architect.
Year-to-date, more than 60 ETFs have launched catering to single-stocks, attracting a combined $23 billion in assets, according to data provided by Sohn.
While that amounts to relative peanuts in the $10 trillion universe of ETFs, it’s still notable, and the funds are seeing a lot of use.
“They do pop up quite often on the most traded ETFs list,” Sohn said, adding that ETFs linked to Nvidia, Tesla, Coinbase, and MicroStrategy are the most popular.
