Leveraged ETFs Pull In $1B as Traders Ignore Costs and Issuers Chase Bigger Multipliers

Retail traders have developed a taste for financial rocket fuel. Leveraged ETFs generated about $1B in revenue last year, triple 2020 levels and more than double the combined haul of passive giants VOO and IVV. These funds aim to magnify daily market swings by two or three times, and because traders only hold them briefly, they’re often willing to overlook the higher fees when quick gains can outweigh costs.

• Bloomberg Intelligence analysts Eric Balchunas and Andre Yapp call leveraged ETFs “outsized revenue efficiency” machines, where a small asset base drives disproportionate profits.
• Despite a December SEC warning that stalled 3x-or-higher launches, firms including ProShares and Roundhill filed for 4x and 5x products targeting everything from semiconductors and Bitcoin.

Testing the waters: The regulatory bottleneck is steep — ETF.com’s Dave Nadig says these proposals stand little chance since “none of them can pass the 200% Value-at-Risk test” required under current rules. Still, Jane Edmondson of TMX VettaFi notes the relentless filing activity “does make one wonder what positive signals they might be getting from regulators.” With leverage selling like never before, issuers aren’t stepping off the gas anytime soon.