Leveraged ETF Offers New Way to Play Trump's Media Group

Investors now have a new way to seek leveraged returns from President Donald Trump’s social media company, Trump Media & Technology Group (DJT): the T-Rex 2X Long DJT Daily Target ETF (DJTU).

The 2X leveraged exchange-traded fund is set to begin trading on March 4, according to a new issue notification from Cboe. The fund seeks leveraged results of two times the daily performance of DJT using derivatives and will carry an expense ratio of 1.05%, Rex Shares confirmed to etf.com.

Investors should keep in mind that leveraged ETFs are complex products that carry more risk than typical ETFs and are meant for active traders rather than long-term investors.

“Expanding the T-REX suite reflects investor demand for targeted, amplified exposure to some of the market’s most closely watched stocks,” Scott Acheychek, chief operating officer of REX Financial, REX Shares' parent company, told etf.com. “DJTU provides traders with an exciting new tool to get exposure to the stock, allowing them to navigate volatility and capitalize on trading opportunities."

Trump Media, the parent company of social media platform Truth Social, is a volatile stock that often trades on news related to the president instead of its fundamentals, including when it fell sharply just after Trump’s inauguration. DJT is down roughly 32% year-to-date.

The double-leveraged ETF is the latest in a series of recently launched investment products tied to the president. In January, Trump Media announced its foray into the ETF industry with plans to launch fund and crypto investments via a new financial technology brand, Truth.Fi. Just a few weeks later, the company applied for trademarks for three ETFs and three separately managed account products.  

Leveraged ETFs Come with Added Risk

While leveraged ETFs became more popular with retail traders and have the potential for gains that exceed the assets they track, they also come with added risk. A recent SEC filing points out that DJTU is designed to only be used by investors who intend to actively monitor and manage their portfolios.

DJTU’s objective is to magnify the daily performance of DJT—but that's not the case for trading periods longer or shorter than a day. For periods longer than a single day, the fund will lose money if DJT’s performance is flat, the filing says, adding that it’s possible the fund will lose money even if DJT’s performance increases over a period longer than a single day.

“The more volatile the underlying stocks are, the harder it gets for these daily leveraged ETFs to keep up,” said Lan Anh Tran, passive strategies analyst at Morningstar. “The leverage in these ETFs exacerbates the stocks’ volatility, making it harder to recover from a large loss.”

Tran added that operation-wise, these ETFs also need enough derivatives contracts on the underlying stocks to support their asset base: “Since an ETF can’t close, the capacity of the ETF depends on how liquid the derivatives market on the underlying stocks is. There have been instances where leveraged ETFs run into capacity problems as they grew too big for the derivatives market they were using.”