Latest news with #leveragedETF
Yahoo
2 hours ago
- Business
- Yahoo
Nvidia Breaks Out, but Leveraged ETF NVDL Lags Behind
Shares of Nvidia Corp. (NVDA) hit a new record high this week, finally breaking out after more than a year of choppy trading. But the largest leveraged ETF tied to the stock, the GraniteShares 2x Long NVDA Daily ETF (NVDL), is still trading below where it was a year ago, offering a cautionary tale for investors in leveraged products. On Tuesday, Nvidia closed above $170 after announcing that the U.S. government would allow it to resume shipments of its H20 AI chips to China, unlocking billions of dollars in potential sales. That closing price was nearly 26% above where the stock sat on June 18, 2024, when it last peaked before entering a volatile, sideways stretch marked by both AI hype and fears around competition and demand. Despite a few attempts to break out—hitting $150 on multiple occasions—Nvidia never meaningfully surpassed its June 2024 high until now. But with this latest rally, the breakout appears to be real. Not so for NVDL. NVDL Lags NVDA Breakout The leveraged ETF, which aims to provide 2x the daily return of Nvidia stock, topped out above $85 in June 2024. On Tuesday, it closed at $81, still about 4% below its prior peak, even as Nvidia trades 26% above its own. That underperformance highlights one of the persistent issues with leveraged ETFs: daily rebalancing decay. These products reset their exposure every day, which can lead to compounding losses (or gains) that diverge meaningfully from the underlying stock, especially during periods of volatility. Even if you get the direction of the trade right, timing and path matter a lot. The divergence has been reflected in investor behavior. NVDL currently holds $4.4 billion in assets under management, down sharply from its peak of $6.7 billion in November 2024. So far this year, investors have pulled $2.2 billion from the fund—possibly a sign of disappointment—even as Nvidia has soared. For those tempted by the double-upside promise of leveraged ETFs, this episode offers a stark reminder that getting the stock right isn't always | © Copyright 2025 All rights reserved
Bloomberg
09-07-2025
- Business
- Bloomberg
Institutional More Appropriate for CLO ETF: Kerschner
Reckoner Capital Management is testing investors' hunger for a new category of risky bets with an exchange-traded fund that uses leverage to juice returns on collateralized loan obligations. Janus Henderson Global Head of Securitized Products John Kerschner has more on the story. (Source: Bloomberg)
Yahoo
28-06-2025
- Business
- Yahoo
3 Reasons to Buy FAS and 3 Reasons Not to
The Direxion Daily Financial Bull 3x Shares ETF aims to triple the S&P Financial Select Sector Index's daily gains -- but its daily losses are amplified, too. It uses total return swaps to deliver those intensified results. It's highly leveraged and exposed to a lot of credit risk. 10 stocks we like better than Direxion Shares ETF Trust - Direxion Daily Financial Bull 3x Shares › The Direxion Daily Financial Bull 3x Shares (NYSEMKT: FAS) exchange-traded fund (ETF) is a leveraged fund that aims to triple the daily performance of the S&P Financial Select Sector index. That index includes 73 of the top financial stocks from the S&P 500, including JPMorgan, Berkshire Hathaway, Visa, Mastercard, Bank of America, and Wells Fargo. FAS uses total swap return agreements with banks to boost its returns. For example, if FAS wants to invest $100 million in the index, it finds a bank to provide it with "synthetic" exposure to $300 million through a short-term loan. The bank then invests $300 million in the index, agrees to pay FAS triple its daily gain, but collects interest from FAS until the swap ends. Simply put, FAS takes on a lot of leverage in pursuit of its goal to triple the index's gains. But that also means it triples the index's losses on down days. A given swap contract with a bank might last for weeks, months, or years, but its gains or losses aren't cumulative and actually "reset" every day. To offset those costs, the fund charges investors a relatively high net expense ratio of 0.89% and parks a lot of its excess cash in U.S. Treasuries. Should investors buy FAS in hopes of tripling the financial sector's returns? Let's review three arguments in favor of buying FAS -- and three reasons to avoid it. It might be smart to invest in FAS for three reasons. First, if the financial sector performs well, the ETF could generate market-beating gains. President Donald Trump has been pressing the Federal Reserve to lower its benchmark interest rates. If it does, that could strengthen banks by sparking more borrowing activity. Meanwhile, the Federal Reserve's recent proposal to free up $6 trillion in its balance sheet capacity could drive more U.S. banks to ramp up their investments in U.S. Treasuries. Second, FAS could be used as a hedge against other bearish bets. For example, if you're shorting individual financial stocks or investing in an ETF that bets against the sector, an FAS holding might offset your losses if those stocks rally instead. Lastly, it does the hard work of bundling multiple messy swaps and other derivatives into a single investment. Buying a single ETF that explains what it is doing in basic terms is much easier for retail investors interested in this sort of investing activity to manage and understand. However, FAS has three glaring weaknesses. First, it can't and won't actually triple the Financial Select Sector index's gains over the long term because it resets its gains and losses daily while constantly paying interest on its swap contracts. Over the past three years, FAS' price rose by 137% as the Financial Select Sector index advanced 60%. More than doubling the index's returns is certainly impressive, but it could quickly give up those gains during a protracted market downturn because the same design that amplifies its gains would similarly triple its losses. Second, its heavy dependence on swap contracts exposes it to a lot of credit risk. If its counterparty bank fails, it loses its leveraged exposure to the index, and it might still owe interest payments on the original contract. Its liquidity -- both on the investor side and the counterparty side -- could also dry up in another credit crunch or market crash. Lastly, FAS is highly sensitive to interest rates. If inflation or geopolitical conflicts result in interest rates staying higher for longer than expected, borrowing and lending activity could slow and banks could struggle -- and the ETF would have to pay higher financing costs on its swap contracts. FAS certainly would not be a good investment for conservative, risk-averse, or passive long-term investors. But if you expect interest rates to decline, the financial sector to heat up, and understand the risks it's taking to "triple" its index's daily gains, then it might be a worthwhile investment -- at least until the next recession. Before you buy stock in Direxion Shares ETF Trust - Direxion Daily Financial Bull 3x Shares, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the for investors to buy now… and Direxion Shares ETF Trust - Direxion Daily Financial Bull 3x Shares wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $713,547!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $966,931!* Now, it's worth noting Stock Advisor's total average return is 1,062% — a market-crushing outperformance compared to 177% for the S&P 500. Don't miss out on the latest top 10 list, available when you join . See the 10 stocks » *Stock Advisor returns as of June 23, 2025 Bank of America is an advertising partner of Motley Fool Money. JPMorgan Chase is an advertising partner of Motley Fool Money. Wells Fargo is an advertising partner of Motley Fool Money. Leo Sun has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, JPMorgan Chase, Mastercard, and Visa. The Motley Fool has a disclosure policy. 3 Reasons to Buy FAS and 3 Reasons Not to was originally published by The Motley Fool Sign in to access your portfolio
