From heaven to hell in a day! $2 billion "Leveraged ETF" bottoms out US tech stocks, blood flowing like a river
A batch of leveraged ETFs centered around technology products has suffered double-digit losses, as the market crash dealt a heavy blow to stocks related to artificial intelligence frenzy. These ETFs aim to double or triple the daily fluctuations of the underlying securities. The NASDAQ-100 Index plummeted 3.7% on Wednesday, marking the largest single-day decline since October 2022. Meanwhile, disappointing earnings reports from Alphabet and Tesla have raised doubts in the market about when investments in artificial intelligence will yield returns. While investors use leveraged products to amplify profits, they also face greater risks and losses. This is an investment event related to technology stocks. In summary, blood is flowing in the technology sector, and investors have suffered significant losses
Zhitong Finance APP noticed that during the recent sharp rise in technology stocks driven by artificial intelligence, buying on dips has always been a winning strategy. Now, this approach has produced a counterproductive effect - especially painful for investors who use leverage to amplify returns.
A batch of leveraged ETFs centered around technology products has suffered double-digit losses, as the previous market crash dealt a heavy blow to AI-related stocks. These ETFs aim to double or triple the daily fluctuations of the underlying securities. The Nasdaq 100 index plummeted 3.7% on Wednesday, marking the largest single-day drop since October 2022, continuing the downward trend that began last week.
Direxion Daily Semiconductors Bull 3x Shares (SOXL.US), which provides three times the daily volatility of the New York Stock Exchange Semiconductor Index, plunged 15% on Wednesday, extending its 37% decline over the past 14 days. Just last week, the fund attracted a record $1.5 billion in capital. ProShares UltraPro QQQ (TQQQ.US) with a market value of $23 billion and ProShares UltraPro S&P 500 (UPRO.US) with a market value of $4 billion fell by nearly 7% and 11% respectively, while receiving inflows of approximately $650 million last week. The combined inflows of the three ETFs exceeded $2 billion.
Before the tech stocks plummeted on Wednesday, disappointing earnings reports from Alphabet (GOOGL.US) and Tesla (TSLA.US) raised doubts in the market about when AI investments would pay off, accelerating the shift from tech stock winners to smaller market cap stocks.
Jane Edmondson, Head of Theme Strategies at TMX VettaFi, stated: "Most investors are using these leveraged products to double their investment ideas." "This approach amplifies returns when fundamentals rise, but also brings greater pain when fundamentals fall.
These seemingly untimely trades highlight the increased risks of investing in these high-intensity ETFs. ETFs use derivatives to enhance returns. Inverse and leveraged ETFs are popular among day traders as they are designed for short-term holding. However, their structure means they can bring both huge losses and huge gains.
So far in 2024, leveraged long and short single-stock funds have accumulated approximately $9 billion in inflows, expected to surpass last year's $10.2 billion. Year-to-date, these four funds are still soaring significantly, with gains exceeding 30%. GraniteShares 2x Long NVDA Daily ETF (NVDL.US) has surged over 280%, becoming one of the most traded ETFs with daily trading volume exceeding $1 billion Mohit Bajaj, the ETF director at WallachBeth Capital, said: "Obviously, when their underlying assets plummet, these ETFs will also fall." "But they have performed very well this year, still showing strong performance so far this year."