ETFs
Nvidia Dethrones Tesla as King of Single-Stock ETFs with 400% Rise
(Bloomberg) — A new stock is reigning supreme in a speculative part of the ETF investing landscape.
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Thanks to the relentless rise of artificial intelligence, Nvidia Corp. (NVDA) now occupies a dominant position in exchange-traded funds that track a single company, accounting for more than half of all assets in so-called single-stock ETFs, or more than $6 billion in total. Meanwhile, Tesla Inc. (TSLA) Risk-focused funds account for just a fifth of all industry holdings, down from two-thirds last year, according to data from JPMorgan Chase & Co. and Bloomberg Intelligence.
Even as the electric-car maker enjoys a stock rally, its popularity among day traders has waned. Now, they are increasingly drawn to the riches offered by trading the world’s most prominent chip maker via bloated ETFs.
In total, Nvidia-focused ETFs have raised $4.4 billion year-to-date, about six times what they’ve raised in all of 2023, according to BI data. Meanwhile, flows into funds that track Tesla alone are just over $1 billion this year, up from $2.8 billion last year.
“NVDA funds have become more popular given investor attention to the AI theme and the stock’s strong outperformance,” a JPMorgan research team, including Bram Kaplan, wrote in a recent note.
Single-stock ETFs, which offer enhanced or inverse returns on their underlying companies, were launched two years ago. There are currently about 60 such funds listed in the United States, with total assets of about $13 billion. In addition to Tesla and Nvidia, there are also funds that track companies such as Apple Inc. (AAPL), Amazon.com Inc. (AMZN) and Microsoft Corp (MSFT).
When regulators allowed these types of funds to launch in 2022, they said they posed a “particular risk” as concerns grew about how retail traders might use them. Indeed, they’ve become so popular that one issuer is even considering launching a MicroStrategy Inc. 2x ETF that, if launched, would become the most volatile fund ever launched in the U.S., according to Bloomberg Intelligence.
“As an industry, we must continue to be concerned that retail investors still do not fully understand how single-stock ETFs are designed to be used – namely for intraday use and not as part of a long-term investment strategy,” said Amrita Nandakumar, president of Vident Asset Management.
The story continues
Last year, Tesla-related funds held the majority of individual stock ETF assets and also accounted for the majority of the cohort’s daily trading volumes. Its famous volatility likely attracted many traders: It gained 102% in 2023, after falling 65% the year before.
This year, Nvidia and the AI hype it has sparked and continues to fuel have been the standout performers. One of the most notable single-stock ETFs focused on the company is the GraniteShares 2x Long NVDA Daily ETF (ticker NVDL), which offers investors a daily yield of twice that of the underlying stock. As part of the fund’s 400% year-to-date surge, its assets have grown from about $210 million at the start of the year to nearly $5 billion. It is now consistently among the most traded ETFs daily.
“If you like Nvidia, you’re going to like Nvidia 2x even more,” Will Rhind, founder and CEO of GraniteShares, said recently on Bloomberg TV’s ETF IQ show. “You have to go where the excitement is,” he said, adding that “the whole conversation is dominated by Nvidia, and that’s why I think Nvidia is the most important stock in the world right now. So it stands to reason that we’re going to build an ecosystem around Nvidia.”
—With the assistance of Athanasios Psarofagis.
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