The Dark Side of Single-Stock ETFs: A Cautionary Tale
Nvidia’s Stunning Plunge Exposes Risks of Leveraged Investments
In a shocking overnight collapse, single-stock ETFs betting big on Nvidia’s meteoric rise plummeted, mirroring the chip giant’s share losses. The GraniteShares 2x Long NVDA Daily ETF (NVDL) suffered a staggering 33.78% loss, while the Direxion Daily NVDA Bull 2x Shares ETF (NVDU) and T-Rex 2X Long Nvidia Daily Target ETF (NVDX) fell 33.8% and 33.77%, respectively. This marks the largest single-day loss for all three funds, according to FactSet data.
A Harsh Lesson for Investors
“This dramatic sell-off serves as a wake-up call for investors who have underestimated the risks of single-stock ETFs,” warns Roxanna Islam, head of sector and industry research at TMX VettaFi. “These funds are designed to amplify performance, but they can also amplify losses, making them unsuitable for investors without a high-risk tolerance.”
The Rise and Fall of Single-Stock ETFs
Since their introduction in 2022, single-stock ETFs have experienced a surge in popularity, with over 60 products available in the U.S., boasting $18 billion in assets. However, their volatility can be a double-edged sword. “These ETFs can magnify gains, but they can also magnify losses,” Islam notes. “It’s only a matter of time before some of them implode, depending on market movements.”
Nvidia’s Market Cap Meltdown
Nvidia’s market cap plummeted by nearly $600 billion on Monday, the largest single-day drop for any U.S. company. The sell-off was triggered by concerns over Chinese AI lab DeepSeek’s intensifying competition in the sector.
The Risks and Rewards of Single-Stock ETFs
While single-stock ETFs come with significant risks, they can be useful trading tools when employed correctly. “They’re best suited for traders who want to take advantage of volatility to express a strong bullish or bearish view over a single day,” Islam explains. However, they may not be suitable for buy-and-hold long-term investors, warns Marc Jocum, product and investment strategist at Global X ETFs.
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