When people think of ETFs, the first words that pop into their heads are likely to be “safe” or “boring.” That’s not the case, though, with so-called leveraged ETFs, which are a more recent innovation offering investors a way to double their returns when they make a bet on a stock index—or, as has been the case in the past two years, on individual stocks like Nvidia or Tesla. These products have been soaring in popularity to the point that leveraged bets on individual stocks have recently jumped 400%.
The chance to double returns through leverage may be appealing, but it’s also one that most ordinary investors may wish to avoid since, if the market moves in the opposite direction than expected, their losses will be double. Since leveraged ETFs now appear to be a permanent part of the investment landscape, it’s worth taking a closer look at how they work and who is using them.
