Even during Wall Street’s sleepy summer, an ETF that only bets on Nvidia is still booming | Wilnesh News
Investors are piling into single-stock funds tracking chipmaker Nvidia ahead of its earnings report on Wednesday, making this a key opportunity for a fast-growing corner of the ETF world to prove its worth. The GraniteShares 2x Daily Long Nvidia ETF (NVDL) attracted more than $500 million in inflows last month and now has total assets of more than $5 billion, according to FactSet. The T-Rex 2X Long Nvidia Daily ETF (NVDX) and Direxion Daily NVDA Bull 2X Shares (NVDU) have also attracted inflows this month and now total assets in excess of $1 billion. The goal of all three is to provide holders with double Nvidia returns on any given day. Total trading volume for these funds also climbed in the third quarter despite slow summer trading activity elsewhere on Wall Street. For example, NVDL’s average daily trading volume in the third quarter was more than 24 million shares, up from less than 18 million shares in the second quarter, according to FactSet data. This gain remains even excluding the high activity on August 5, when the stock market saw a massive sell-off and NVDL traded more than 50 million shares. “Nvidia is the most important stock in the world right now, so it stands to reason… the demand is going to be huge. It’s just the zeitgeist of 2024. But yeah, it does surprise me with its strength. Just from a business perspective, Money is flowing in,” said Will Rhind, CEO of GraniteShares. Note: NVDL and NVDU have lower leverage at the beginning of the year. These funds are designed to achieve a target multiple return in just one day. The issuer warns that returns may deviate from that target the longer investors stay in the fund. . Long-term holders have been rewarded so far in 2024, though. Entering Wednesday, Nvidia was up 159% for the year, with three leveraged long ETFs all delivering higher returns. Single-stock ETFs were approved in 2022, and several technology companies quickly became the most popular names for such strategies. These funds use derivatives such as swaps, which reset each day at market close, to obtain leveraged upside or inverse exposure to the underlying stock price. But while single-stock funds are still fairly new, leveraged ETFs that target broad indexes or specific sectors have a longer-term and mixed track record. “ETFs offer a lot of benefits to investors, but this part of the ETF market is almost like a casino that attracts a lot of attention. So it’s usually through leveraged and inverse ETFs that do that,” he said. Armor, director of North American passive strategy research at Morningstar. Inverse NVIDIA funds also exist, although so far they are less popular than leveraged long funds. However, Rex Financial Chief Operating Officer Scott Acheycheck said the profits were a “progressive” event for both his company’s short-term and long-term funds, and there appears to be growing interest in short-term funds as a way to manage certain specific risk exposure. “I’ve been doing leveraged contrarian investing for a long time, but in the last six months I’ve been getting more and more calls from financial advisor types. They’re primarily interested in short-term products. They feel like they’re in Nvidia’s customer portfolio shows the same,” Acheycheck said. The emergence of single-stock funds coincided with the growth in demand for short-term options. Rhind said the growing demand for funds may be due in part to the high cost of the types of Nvidia options available to individual traders. Of course, Nvidia’s stock won’t rise forever, and when the stock falls, leveraged long funds magnify losses. These amplified losses and the so-called “volatility decay” caused by daily rolling of short-term options could cause leveraged funds to underperform Nvidia over longer periods of time. Although these funds have grown significantly, they are still less liquid than major index funds. Ed Egilinksy, director of sales and distribution at Direxion, said that with any of these leveraged funds, investors should be aware of aftermarket volumes and spreads and consider using limits in their order books. “When the market opens the next morning, that’s probably a more true test of where the trade is than aftermarket. But people can trade in the aftermarket if they want to. They just have to be aware of the fact that the trade might It’ll be lighter,” Egilinski said. Cost can also be a drag on long-term performance compared to buying Nvidia directly or in cheaper forms of ETFs, such as index funds. All three Nvidia long funds have annual expense ratios above 1%. Leveraged ETFs tracking gold mining stocks are one area where even bullish funds have underperformed their reference indexes over time, Morningstar’s Armor noted. “People tend to hear stories of some kind of gambling success more often than stories of failure. I think when people see the potential, especially the historical performance, they open their eyes,” Armor said.
