By Suzanne McGee
PROVIDENCE, RHODE ISLAND, Aug 25 (Reuters) - Red-hot demand for high-risk leveraged and inverse single-stock ETFs may be starting to cool.
The increasingly volatile bull market has fueled investor interest in finding ways to double the hoped-for gains in the market's most popular and volatile stocks. As these speculative plays have multiplied — accounting for as much as half of all new launches in June alone — market analysts are questioning the trend's durability.
"The market for these
is saturated and there's only so much money out there chasing this kind of product," said Morningstar analyst Daniel Sotiroff. "A few firms at the top end up commanding the lion's share of the money, and then there's a long tail of also-rans who are struggling to attract assets."
A rule of thumb in the ETF industry is that to survive and thrive, according to analysts like Sotiroff and Cerulli Associates, a new fund needs to attract between $50 million and $100 million in assets over the first year or two of its life. Below that threshold, it gets tougher for backers to cover their costs.
While mainstream ETFs, made up of baskets of stocks rather than exposure to a single one, continue to pull in assets and the leveraged market segment boasts behemoths like the $3.9 billion GraniteShares 2x Long NVDA Daily ETF, these are the exception.
The size of the average leveraged ETF, each of which aims to deliver a multiple of the underlying stock's return in a single trading session, has tumbled from $272.2 million at the end of 2024 to $63.3 million currently, according to data from Morningstar Direct. Half have less than $7 million.
SUBSEQUENT WAVES SEE SMALLER TARGETS, CONSOLIDATION
Amrita Nandakumar, president of Vident, a firm that helps bring new ETFs to market, said she believes the market is at the end of its second wave of expansion, with each successive wave of launches "scraping the bottom of the barrel" as issuers target more speculative, smaller or untested stocks.
Filings like this, she said, have allowed asset managers to debut a record 244 leveraged ETFs by mid-August, compared to 229 launched in all of 2025.
"The first wave we saw a few years ago, and it involved creating leveraged ETFs tied to the names that you'd expect, big, widely watched and volatile companies" such as Nvidia, Tesla and Alphabet, Nandakumar said.
The second wave, which began last year, has been different. New products are tied to much smaller companies, with some new filings targeting high-profile companies that have yet to go public or even file for an IPO. Other filings offer investors double the daily upside, or the loss, of AI-themed ETFs launched only days previously.
"You don't necessarily see these products being listed on the biggest or most stable companies any longer," said Elisabeth Kashner, director of global funds research at FactSet.
Consolidation is already underway. So far in 2026, Morningstar said 63 leveraged single-stock funds have closed their doors in the U.S., compared to just three in 2025. Their ranks include products from Tradr ETFs tied to software firms MongoDB and Datadog, hard hit earlier this year by a big selloff amid fears that AI would wreak havoc on their business models.
“We are consistently evaluating our suite of funds to gauge investor demand," said Matt Markiewicz, head of product and capital markets at Tradr.
One closure highlighted the risks associated with leveraged products. GraniteShares liquidated a 2x leveraged ETF tied to shares of Lucid Group after the electric vehicle manufacturer saw its shares plunge some 51% in a single day on July 14. Such a move in an asset underpinning a 2x fund brings the latter's net asset value to zero.
"If a fund is below break even or shows no real signs of adoption by the market, we'll close it," said GraniteShares CEO Will Rhind. He did not comment specifically on the liquidation of the Lucid-linked ETF.
UNDETERRED
Some are not deterred by the challenges of trying to break into the leveraged ETF market.
So far this year, Corgi Invest, a Silicon Valley startup, has launched 127 new leveraged or inverse single-stock products and has plans for more.
Its founder, Emily Yuan, said in an interview that the firm will not launch these products only to rapidly shutter them.
While Corgi's products have so far pulled in an average of $1 million in assets, Yuan says the firm's lower fees will win business from rivals.
"If you make good products, the money will come," she said.
(Reporting by Suzanne McGee; Editing by Megan Davies and Bill Berkrot)
