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A risky corner of the stock market has soared in 2024 amid another year of stellar gains.
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Traders have flocked to single-stock ETFs in an effort to boost returns on popular names like Nvidia.
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These types of ETFs will have attracted more than $20 billion in assets by 2024.
While the stock market was an early frontier the gambling craze that gripped America in 2024, investors have created a boom in a relatively new type of investment product that can magnify profits – and losses – in a single name.
Use hedge funds that are traded on one exchange.
Since their introduction in the early 1990s, ETFs have been groundbreaking in providing the features of a mutual fund (which owns a basket of diversified stocks) while providing the daily trading liquidity of a single stock.
But even after thirty years, the humble ETF is seeing new updates aimed at investors with a strong risk appetite.
Rather than owning a basket of stocks, single-stock ETFs track the price of one stock, the returns of which the fund will attempt to capture by inflating it.
“These are vehicles that mass retail has never had the opportunity to trade in until now,” Todd Sohn, an ETF specialist at Strategas, told Business Insider.
The GraniteShares 2x Long NVDA Daily ETF aims for a double move of Nvidias daily price fluctuations.
On Friday, Nvidia shares rose about 2.5% amid a broader market recovery, 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 try to implement high-conviction ideas through them,” Sohn said.
Investors are pouring billions of dollars into these funds, which has led to a number of very successful ETF launches in recent months.
That 2x Nvidia ETF has attracted more than $5 billion in assets, while other popular leveraged ETFs track stocks like MicroStrategy And Coin base have each attracted over $1 billion in assets.
That’s a big problem for the ETF industry, where the breakeven point for most ETF products is around $50 million in assets, according to white-label ETF provider Alpha Architect.
So far, more than 60 ETFs have been launched that focus on individual stocks, attracting a total of $23 billion in assets, according to Sohn data.
While that’s relative peanuts in the $10 trillion universe of ETFs, it’s still notable, and the funds are widely leveraged.
“They show up quite often on the list of most traded ETFs,” Sohn says, adding that ETFs tied to Nvidia, Tesla, Coinbase and MicroStrategy are the most popular.