Core Insights - Leveraged ETFs require a distinct monitoring framework compared to traditional buy-and-hold funds, highlighting the need for specialized strategies in managing these investment vehicles [1] Group 1: Leveraged ETFs - SOXL offers 3x daily exposure to the semiconductor sector, emphasizing the unique characteristics and risks associated with leveraged ETFs [1]

Core Insights - Netflix's stock experienced a decline of 9.4% over the past five days following a significant deal with Warner Bros. Discovery, while leveraged ETFs tracking Netflix have seen even larger declines due to the nature of their structure [2][4] Group 1: Leveraged ETFs Performance - The Direxion Daily NFLX Bull 2X Shares (NFXL) is down by 5.5% year to date, despite Netflix stock being up by 9% [2] - The Direxion Daily NFLX Bear 1X Shares ETF (NFXS) has also declined by over 14% year to date, illustrating the volatility and decay associated with leveraged ETFs [4] - Leveraged ETFs are designed for experienced traders and are not intended for long-term holding due to their tendency to lag behind the performance of the underlying stocks [4] Group 2: Mechanisms Behind Leveraged ETFs - The performance of leveraged ETFs is affected by "decay," which refers to their tendency to lag the securities they track, especially in volatile markets [2][6] - The leverage in these ETFs comes from the sizing of swap agreements, which can obscure the actual risk and return profile for investors [5] - Volatility decay means that when an investment loses value, it must increase by a higher percentage to return to its original value, a phenomenon that is amplified in leveraged ETFs [6]

Hosts Dave Nadig, President and Director of Research at ETF.com as well as Sumit Roy, Senior ETF Analyst at ETF.com, are joined by industry experts to cover the latest and greatest happenings in ETFs. This week's episode features Mike Akins, Founding Partner of ETF Action; Eric Balchunas, Senior ETF Analyst at Bloomberg Intelligence; and Todd Sohn, Senior ETF & Technical Strategist at Strategas Securities. In this episode of the ETF Zoo, the panel discusses the latest trends in the ETF market, including s ...

Core Viewpoint - ProShares has withdrawn its registration request for highly leveraged ETFs following a warning from the U.S. Securities and Exchange Commission (SEC) regarding risk exposures and the review of such plans [1][2]. Group 1: SEC's Regulatory Actions - The SEC sent letters to nine ETF providers, including ProShares, requesting clarity on risks associated with funds aiming to track up to five times the performance of underlying stocks [2]. - The SEC's concerns are based on Rule 18f-4 under the Investment Company Act of 1940, which mandates that a fund's value-at-risk must remain below 200% of an appropriate reference portfolio [5]. - The SEC suggested that fund managers revise their strategies to comply with regulations or withdraw their filings [5]. Group 2: Market Context and Trends - Leveraged ETFs have gained popularity among retail investors due to bullish market sentiment, speculative trading, and innovation in products, particularly around single stocks and cryptocurrencies [4]. - The scrutiny from the SEC adds pressure to the leveraged ETF market, which continues to attract retail investors despite concerns over complexity and risks [6]. - The ProShares UltraPro QQQ ETF, the largest leveraged ETF by assets under management, targets three times the daily performance of the Nasdaq 100 index and has seen over 40% gains this year, highlighting the potential for high returns alongside increased risks [7].

Core Viewpoint - The SEC has halted the review of new leveraged ETFs that provide more than 2x exposure to underlying securities, marking a significant regulatory intervention after a period of deregulatory actions [2][3]. Group 1: SEC Actions - The SEC sent warning letters to nine issuers, including Direxion, GraniteShares, and ProShares, requesting them to revise their strategies or withdraw their applications for leveraged ETFs exceeding 2x exposure [2]. - This action introduces the first regulatory hurdle for new product launches in months, following a series of proposals for 3x and even 5x leveraged strategies from various issuers [2][3]. Group 2: Market Context - The SEC's decision comes amid a surge in proposals for leveraged products, particularly those targeting volatile stocks like Nvidia, Coinbase Global, and Tesla, which have faced scrutiny under the agency's existing framework [3]. - Despite the growing interest in leveraged products, their performance has been inconsistent, with some ETFs experiencing significant losses [4]. Group 3: Performance of Leveraged ETFs - The ProShares UltraPro QQQ ETF (TQQQ), the largest leveraged ETF, has gained 40% this year, while others like the Defiance Daily Target 2X Long MSTR ETF (MSTX) and GraniteShares 2x Long COIN Daily ETF (CONL) have seen declines of 88% and 40%, respectively [5].

ETF Market Trends - Leveraged and inverse ETFs, while small relative to the overall ETF market, exhibit significant trading activity, raising questions about their potential impact on the options markets [2] - Retail investors and ETF issuers are increasingly engaging with risky leveraged and options-based ETFs, viewing them as "lottery tickets" with potential for high returns [7][8] - The industry anticipates a lifecycle for retail investors in these products, with initial enthusiasm potentially leading to negative experiences and a subsequent shift towards more traditional index funds [9][10] - Issuers will continue to launch these products, but some will thrive while others will fail, presenting closure risk [10][11] Correlation and Volatility - There's a notable increase in volatility within the risk-on/risk-off space, impacting crypto and other high-beta stocks, leading to conditional correlation where seemingly unrelated stocks trade in line during market weakness [3][4][5] - Correlation convergence is observed during periods of volatility, impacting the prices of options on sector-based ETFs [5][6] Crypto ETFs - Despite recent downside volatility, Bitcoin ETFs have experienced substantial growth, with Bitcoin up over 80% since the launch of spot Bitcoin ETFs in January 2024 [12][17] - Spot Bitcoin ETFs have seen outflows of approximately $45 billion over the past month, but year-to-date inflows remain significant at around $22 billion [18] - Spot Ether ETFs are down 40% since early October, but year-to-date inflows are about $10 billion [19] - Deleveraging in the crypto space is identified as a primary driver of recent weakness, exacerbated by broader equity market weakness and increased correlation among higher beta names [19][20] - Bitcoin price could test the $70,000 level, which represents the breakout point and the cost basis of strategies Bitcoin holdings, potentially finding support near the cash cost of mining [16]

Core Insights - Retail investors have been highly active in the markets this year, significantly increasing their investments in broad-based ETFs and other assets [1][2] - Despite institutional doubts about the sustainability of the AI trade, retail investors continue to invest in AI-related stocks [2] - Retail investor leverage has reached record levels, with brokerage account leverage exceeding $1.1 trillion, the highest since the 1990s [3][4] Investment Trends - Retail investors are purchasing assets at a rate 50% above last year's levels, indicating strong market participation [2] - Leveraged ETFs have seen assets surpassing $140 billion, reflecting the confidence of retail investors despite recent market volatility [5] - Individual investors have experienced a 15% return on the S&P 500 this year, contributing to a positive sentiment heading into the Thanksgiving holiday [7][9] Market Performance - The U.S. market has delivered strong returns over the past two years, with this year being the best in a quarter-century [9] - While some retail favorites have faced declines, broader ETF inflows have continued for 10 consecutive weeks, indicating sustained interest in diversified investments [11]

Korea leverage ETF. Photo by BeInCrypto South Korea is tightening oversight of its most aggressive retail traders, introducing mandatory training for anyone who wants to trade foreign leveraged ETFs. The move follows a record surge of Korean money into high-risk US products—and growing concern that this speculative wave is distorting global markets. South Korea’s Regulators Step In After a $7 Billion Monthly Surge South Korea’s Financial Supervisory Service (FSS) will require retail investors to complet ...

Group 1 - The proliferation of leveraged ETFs, single stock ETFs, and 'enhanced income' covered call ETFs has led to market oversaturation, causing confusion for investors [1][2] - The Harvest team is attempting to innovate within their niche by focusing on single stock 'enhanced income' covered call ETFs, which may not be in the best interest of investors [2] - There is a suggestion that the Harvest team should consider selling their fund management business to a larger player due to their sub-scale operations [2]

Core Viewpoint - Wall Street is increasingly pursuing the launch of riskier leveraged ETFs, with issuers testing the limits of legal boundaries in the U.S. through a surge of recent filings [1] Group 1 - The trend of launching leveraged ETFs is gaining momentum among financial institutions [1] - Recent filings indicate a significant increase in the appetite for riskier investment products [1] - Issuers are exploring the legal framework to expand the types of leveraged ETFs available in the market [1]