What's happened
Filings reveal plans for 27 levered ETFs, including 5x-leveraged single-stock and crypto funds, amid regulatory uncertainty due to the US government shutdown. Approval remains uncertain, raising concerns about increased market risk and investor safety.
What's behind the headline?
The push for 5x-leveraged ETFs signals a significant shift in market regulation and investor risk. The SEC's current stance is uncertain due to the government shutdown, but recent trends suggest a more permissive approach under the new administration. This could lead to increased market volatility, especially as leveraged funds amplify gains and losses. The history of leveraged ETFs shows a high failure rate, with over half closing and many losing nearly all value, highlighting the danger for retail investors. The move may also reflect a broader deregulation effort aimed at fostering innovation, but it risks exacerbating market gamification and instability. If approved, these products will likely attract retail investors seeking high returns but could also accelerate market downturns if misused.
What the papers say
Business Insider UK reports that the SEC's approval of 27 levered ETFs, including 5x-levered funds tied to cryptocurrencies and stocks like Tesla and Alphabet, is uncertain due to the government shutdown. An SEC spokesperson indicated operations are limited, but recent policy trends suggest approval is possible, especially under the current administration's more lenient approach. Meanwhile, Morningstar data shows a rapid increase in single-stock ETFs, with assets soaring from $169 million in 2022 to $24 billion in 2024, raising concerns about market risk. Bloomberg highlights that the SEC is also considering a new ETF tracking US leveraged loans, indicating growing interest in complex debt instruments. Critics warn that high leverage ETFs are inherently risky, citing that 55% of launched leveraged ETFs have closed and many have lost over 98% of their value, emphasizing the potential danger for retail investors and market stability.
How we got here
Recent years have seen a surge in single-stock ETFs, with assets rising from $169 million in 2022 to $24 billion in 2024. The SEC has historically limited leverage to 2x, but filings suggest a move toward higher leverage, testing regulatory boundaries. Leveraged ETFs are known for their risk, with many closing or losing significant value, raising concerns about market stability and retail investor protection.
Go deeper
More on these topics
-
BlackRock, Inc. is an American global investment management corporation based in New York City. Founded in 1988, initially as a risk management and fixed income institutional asset manager, BlackRock is the world's largest asset manager, with $7.4 trillio