Leveraged Single-Stock Funds Are Starting to Blow Up

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00:00Athanasios, Katie basically mentioned that we don't have three times leveraged ETFs here in

00:05the U.S., but the issuers want to change that, and this latest blow-up isn't really stopping them.

00:11Oh, no. Yeah, the timing is, like, perfect. But, yeah, like you mentioned, 2x exists.

00:16They want to push it to the next envelope, which is 3x. There's some rules that don't

00:20quite allow this, but ETF issuers are really creative, so I think they found a way that

00:24they can sort of call it 3x by using a bunch of different derivatives, not just necessarily

00:28swaps and things like that. So it seems like they have a workaround for it. We'll see what the SEC

00:33says. Like, nothing's definite yet, but it should tell you with meme coming back in 3x just where we

00:39are in this cycle, right, and just, like, how people feel about the market right now. Well, the SEC is

00:44not even working right now because we are in a shutdown. The government is still shut down. That

00:48is a good reminder there, and you talk about perfect timing. It does feel perfect because

00:52a bunch of these proposed 3x leverage U.S. ETFs, they're around AMD, which is the stock that

00:59ultimately caused this one to go to the graveyard. But when it goes to a graveyard, when an ETF goes to

01:05die, I thought it was interesting. You take a look at the website of Granite Shares. They said that

01:09because the NAV was at zero, no redemption payments will be made. Is that typical? Do investors

01:18usually get something out when an ETF is ultimately shuttered? Yeah, it all depends. So there's, like,

01:23two things. It's, like, a liquidation, right, which is, like, just what it's worth at that day

01:26you close it. It's worth zero, right? That's just what they're going to get. Sometimes you might get

01:30a few pennies out of it just depending on, you know, how they ended up, how they end up, like,

01:34resolving it. But, yeah, it's just, that said, even with this liquidation, I just think people are so

01:39bullish right now, and there's so many, like, animal spirits. I don't think this dislodges anything. Like,

01:44an ETF blows up. We just sort of move on to the next one. An issuer might launch another 3X AMD one,

01:49and we sort of just, like, move on. So, but the industry has a history of shrugging off incidents,

01:54right? We had XIV blew up a couple years ago. We had bond ETFs during COVID, and that really hasn't

02:00skipped a beat, and the industry is obviously still okay with these products. No one bats an eyelash.

02:04To what extent are degentrators, and I use that because Eric loves that term, degentrators,

02:09talking about the blowup of this three times leveraged, inverse leveraged ETF on AMD. How are

02:16they talking about in Reddit and the other forms that they gather in? I mean, is there some kind

02:20of acknowledgement that, oh, hey, this can happen? Oh, yeah, for sure. We even track, like, media

02:25mentions of the word degent, and they're way up. So, obviously, you see the issuers feeding into it.

02:30Investors want these types of products. But, you know, I think at this point, people kind of know the

02:36risks, right? Like, you obviously know a 3X is going to be more volatile than a 2X. You know a

02:403X Regetti or something like that's going to be really volatile. So, I think they're okay with it.

02:44But, yeah, you know, I think I wouldn't be surprised if the issuers are also kind of looking

02:49on these message boards and Reddits and sort of seeing what stock should we go after. And I don't

02:54think anything is off limits in terms of, like, what stocks they want to put into this wrapper.

02:58Absolutely. Yeah, I have to imagine it's a great place to source ideas. You know, I showed that chart

03:03of bond ETF launches as a percent of overall it launches. You made that chart. So, I'm going to

03:08ask you about it. Because is the number of, are the number of bond ETFs being launched,

03:14is it actually going down? Or is it just that you have issuers launching so many of these leveraged

03:19single stock funds that it's pushing the share down? Yeah, I think it's a little bit of both.

03:22I think you also have the existence of things like buffer ETFs, which in a way have sort of been

03:28looked at as a bond replacement, just because I think we're so spoiled now with all these gains

03:33everywhere, right? And you're like, oh, well, I'm only making X amount on the ag. And sometimes

03:37when the market's down, the ag's not up. So, I think people are just looking for other types

03:41of, like, solutions. And the issuers will pivot. Like, if all of a sudden bonds come back and the

03:45Fed starts cutting and whatnot, they will probably start launching more creative bond ETFs. But I think

03:50now they're just sort of listening to the market. So, I think it's a little bit of both. I think people

03:54a little sort of kind of cooled off on bonds a little bit, and they're just looking for

03:57these other high-octane stuff.

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