Leveraged ETFs betting on Nvidia's (NVDA, Financial) strong performance took a significant dive as the chipmaker's stock plummeted. GraniteShares 2x Long NVDA Daily ETF (NVDL) fell by over 33.78%, while Direxion Daily NVDA Bull 2x Shares ETF (NVDU) and T-Rex 2X Long Nvidia Daily Target ETF (NVDX) dropped 33.8% and 33.77%, respectively. These funds experienced their largest single-day declines, according to FactSet data. Conversely, GraniteShares 2x Short NVDA Daily ETF (NVD) saw a rise of 33.71%.
Roxanna Islam, head of industry research at TMX VettaFi, noted that this downturn serves as a stark lesson for investors heavily betting on Nvidia's rise without understanding the risks of single-stock ETFs. These ETFs aim to replicate twice the daily performance of Nvidia's stock. Among these, GraniteShares 2x Long NVDA Daily ETF boasts the largest assets under management (AUM), currently at $4.3 billion, having decreased from $6.4 billion last November.
Islam emphasized that while these ETFs can amplify gains, they can also magnify losses, making them unsuitable for risk-averse investors. Since gaining approval in 2022, the popularity of single-stock ETFs has soared, with over $18 billion in assets across more than 60 products in the U.S. These ETFs strive for higher returns than their underlying assets but come with greater volatility.
According to Marc Jocum from Global X ETFs, the collapse of some funds might just be a matter of time, depending on individual stock market trends. Despite the risks, single-stock ETFs can be useful trading tools, especially for speculative traders looking to capitalize on volatility. However, Jocum warns they may not suit long-term investors aiming for a buy-and-hold strategy.
