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- An ETF provider has filed for 27 new levered ETFs, including some 5x-levered products.
- Leveraged ETFs are risky; 55% have closed, and 17% have lost over 98% of their value, Morningstar says.
- The SEC's current shutdown has left a question mark hanging over the approval of the funds.
The ETF market, once a place for investors to make relatively unexciting bets that track whole sectors or indexes, has become increasingly speculative in recent years.
New filings indicate that it's set to drift even further into higher-risk territory.
Asset management firm Volatility Shares has filed for regulatory approval for 27 levered ETFs, including a handful 5x-levered single-stock and crypto funds.
The products, which aim to amplify daily moves in the underlying asset, would represent a significant shift in the leverage allowed by regulators if they are approved. Previously, the most leverage the Securities and Exchange Commission. has allowed for a single-stock ETF has been 2x.
The 5x ETFs would be tied to assets like bitcoin, ehtereum, and solana, and to some popular stocks including Alphabet and Tesla. Leveraged funds are riskier as they amplify gains and losses in the stocks that they track, in this case, by five times.
For now, the approval of the assets is uncertain with the government shutdown halting activity at the SEC.
Asked about the filing, an SEC spokesperson said in an email: "Due to a lapse in appropriations, the SEC is currently operating in accordance with the agency's plan for operating during a shutdown. During the shutdown, the SEC's public affairs office is not able to respond to many inquiries from the press."
The SEC posted on Sept. 30 that some filings could become effective automatically after a "certain number of days."
But even if the SEC were running as normal, Bryan Amour, the director of ETF and passive strategies research for North America at Morningstar, said that the products' approval is not unlikely given the agency's approach in recent years.
"I think they stand a chance. This is testing the limits of the SEC's more accommodative policy under the new administration," Amour told Business Insider. "I don't know where the limit is anymore for the SEC, and so it will be interesting to see."
He added: "They're trying to deregulate and improve the conditions for innovation. In that sense, I don't think there's anything innovative about a 5x levered ETF, but it does sort of fit the mold of let the market decide if this strategy deserves to be in the ETF wrapper rather than the SEC."
Single stock ETFs, often coming in some type of leveraged form, are increasingly popular. As of December 2024, there were 102 single-stock ETFs on the market, with 61 of them levered, according to Morningstar data shared with Business Insider earlier this year.
Assets under management in single-stock ETFs have also gone way up in recent years, from $169 million in 2022, when they were first approved, to $24 billion in 2024.
Other sources told Business Insider they were concerned that the funds would make the market riskier, amplifying what many see as a trend gamification of the markets, particularly among the retail investor cohort.
Volatility Shares declined to comment.
Armour highlighted data that's already demonstrated the risks of leveraged ETFs.
"Fifty-five percent of leveraged ETFs that have launched have closed already," he said. Of the couple hundred that have launched, "17% have lost over 98% of their value," he added.
