Nvidia Dethrones Tesla as Single-Stock ETF King With 400% Rally

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(Bloomberg) — There’s a new stock reigning supreme in a speculative part of the ETF investment landscape.

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Thanks to the relentless artificial-intelligence boom, Nvidia Corp. now holds a commanding position in exchange-traded funds that track a single company — representing more than half of all assets across so-called single-stock ETFs, over $6 billion in total. Meanwhile Tesla Inc.-centric funds represent just a fifth of all holdings in the sector, 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 rebound, its stature among day traders has diminished. These days, they’re increasingly lured by the riches on offer trading the world’s pre-eminent chip designer via the amped-up ETFs.

All told, Nvidia-focused ETFs have taken in $4.4 billion so far this year, roughly six times more than what they garnered during all of 2023, according to the BI data. Meanwhile, flows into funds tracking only Tesla amount to just over $1 billion this year, compared with last year’s $2.8 billion haul.

“NVDA funds have become more popular given investors’ focus on 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 juiced-up or inverse returns on their underlying companies, launched two years ago. There are currently around 60 such funds listed in the US, with about $13 billion in total assets. Besides Tesla and Nvidia, there are also funds tracking companies including Apple Inc., Amazon.com Inc. and Microsoft Corp.

When regulators allowed these types of funds to launch in 2022, they said they presented a “particular risk,” as worries swirled about how retail traders might use them. Indeed, they’ve become so popular that one issuer is even looking to introduce a 2x MicroStrategy Inc. ETF that, if launched, would become the most volatile fund to debut in the US, according to Bloomberg Intelligence.

“As an industry, we should continue to be concerned that retail investors still do not fully understand how single-stock ETFs are designed to be utilized, namely for intraday use and not as part of a long-term investment strategy,” said Amrita Nandakumar, president of Vident Asset Management.

Last year, funds tied to Tesla held the majority of single-stock-ETF assets and also accounted for the vast bulk of the cohort’s daily trading volumes. Its famous volatility likely drew a lot of traders in — it gained 102% in 2023, after a 65% drop the year prior.

But this year has been all about Nvidia and the AI craze it has sparked and continues to fuel. One of the single-stock ETF standouts among the bunch focused on the firm has been GraniteShares 2x Long NVDA Daily ETF (ticker NVDL), which gives investors two times the daily return of the underlying shares. Amid the fund’s 400% year-to-date rally, its assets have grown to nearly $5 billion from around $210 million at the start of the year. It can now consistently be found among the most-traded ETFs on a daily basis.

“If you love Nvidia, you’re going to love 2x Nvidia even more,” GraniteShares founder and CEO Will Rhind said on Bloomberg TV’s ETF IQ recently. “You’ve got to go where the enthusiasm is,” he said, adding “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 goes without saying we’re going to get an ecosystem around Nvidia.”

–With assistance from Athanasios Psarofagis.

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