Are Leveraged ETFs to Blame for Selloffs? JPM Says Yes

Core Viewpoint - Leveraged ETFs are being scrutinized for their potential role in exacerbating market volatility, particularly following a significant stock selloff attributed to external factors like tariff threats from President Trump [2][4]. Group 1: Market Impact - JPMorgan analysts indicated that leveraged ETFs contributed to approximately $26 billion in selloffs, worsening the S&P 500's largest one-day loss since April [2]. - The volatility associated with leveraged ETFs is heightened due to their structure, which often involves swaps that can lead to forced buying and selling, increasing market instability [4]. Group 2: Expert Opinions - While some experts acknowledge the risks posed by leveraged ETFs to individual investors, not all agree on their systemic impact, with some suggesting that they do not create widespread issues [3][4]. - Morningstar's research analyst highlighted a pattern of investor amnesia regarding the risks of leveraged ETFs, suggesting that past failures are often forgotten by investors [5]. Group 3: Industry Context - Leveraged ETFs represent only 1% of the total $12 trillion ETF industry in the US, indicating that their overall market presence is relatively small [6]. - The largest 3x leveraged ETF, ProShares UltraPro QQQ (TQQQ), has around $29 billion in assets under management, suggesting limited systemic risk from these products [4].