Direxion is rolling out two new exchange-traded funds (ETFs) tied to the price movement in shares of Nvidia Corp, the financial products provider said on Wednesday, seeking to capitalize on excitement over developments in artificial intelligence that helped boost stocks this year.
The Direxion Daily NVDA Bull 1.5x Shares ETF seeks to deliver 1.5 times the price return of daily moves in Nvidia’s shares, which have more than tripled year-to-date. Meanwhile, the Direxion Daily NVDD Bear 1x Shares ETF allows bearish investors to profit when Nvidia’s shares decline.
Single-stock ETFs made their debut in 2022, but only a handful of products have since been introduced by five firms, including Direxion. Asset managers employ an array of derivatives to deliver the promised results.
Of course, the potential to make outsized gains comes with greater risk if the market moves the wrong way. Because of their increased exposure, investors’ losses in leveraged exchange traded products can be staggering, analysts said.
“There’s no reason anyone really needs to buy a 1.5x return ETF based only on Nvidia, other than pure speculation,” said Bryan Armour, director of passive strategies research at Morningstar Inc.
GraniteShares launched a similar ETF, the GraniteShares 1.5x Long NVDA ETF (NVDL) in December 2022.
Direxion did not return e-mails seeking comment. On its website, a page devoted to the firm’s suite of inverse and leveraged ETFs is accompanied by a note saying that these products are “for traders averse to risk averse.”
In the press release announcing the launch, Edward Egilinsky, managing director of Direxion, said the new funds are “for those who want to take more risk on the AI trade.”
Direxion has had success with leveraged single stock ETFs in the recent past - its Direxion Daily TSLA Bull 1.5x Shares ETF is the largest among the small number of similar funds that have come out in recent years, having attracted $1.1 billion.
Only four leveraged single-stock ETFs currently have more than $50 million, according to Morningstar.
(Reporting by Suzanne McGee; Editing by Ira Iosebashvili and David Gregorio)