Nvidia ETF Highlights the Perils of Leveraged Funds
NVDL has decayed significantly in the past few months. That's bad news for holders of leveraged exchange-traded funds tied to Nvidia.
This week’s big moves in shares of AI chip giant Nvidia Corp. fueled massive volatility in leveraged ETFs tied to the stock.
The $5 billion GraniteShares 2x Long NVDA Daily ETF (NVDL) tumbled 34% on Monday as concerns about China’s DeepSeek AI models raised worries about the demand for Nvidia’s cutting-edge GPUs.
Then on Tuesday, the ETF surged 13% as bargain hunters scooped up shares of the world’s most valuable chipmaker.
At Tuesday’s highs, Nvidia was trading just under $127, the same price it traded at when the stock hit the low of the day on Dec. 17.
Why do I bring this up? Because these dates perfectly illustrate the perils of holding leveraged ETFs in trendless markets. On Tuesday, NVDL topped $55.21 at its highs, but on Dec. 17, it never fell below $59.77.
NVDL Shows Signs of Decay
In other words, at the same price for Nvidia stock—around $127 at Tuesday’s high and the low point on Dec. 17—NVDL was trading at significantly different prices. It was nearly 8% lower this time around.
The damage is even more extensive if you look further back. Nvidia first neared $127 on June 12, 2024. The price of NVDL on that date was $75.
In other words, NVDL has “decayed” 27% over the past seven months.
The deviation in performance comes from the math behind daily rebalancing. When Nvidia goes up, NVDL increases its exposure to the stock; when the stock goes down, the ETF decreases its exposure.
This buy-high, sell-low process takes its toll when Nvidia is trend-agnostic—the stock neither goes up nor down over time.
The decay associated with leveraged and inverse ETFs can surprise investors who buy them without fully understanding them.
As long as you know what you’re getting into, leveraged ETFs can be a useful tool for those with aggressive investment strategies.
These ETFs are beloved by many. Over the past year, inflows in leveraged exchange-traded funds has totaled $13.5 billion, according to etf.com’s screener tool. Check out our screener to find leveraged ETFs and sort them by various criteria, including leverage ratio (2x, 3x, etc.), fund flows, and more.
