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Direxion Launches New ETFs Tied to Nvidia’s Stock Movement

Direxion, a financial products provider, has announced the launch of two new exchange-traded funds (ETFs) that track the price movement of Nvidia Corp's shares. The move comes as excitement over developments in artificial intelligence has contributed to a significant boost in Nvidia's stock price this year.

The first ETF, called the Direxion Daily NVDA Bull 1.5x Shares ETF (NVDU), aims to deliver a 1.5 times return on the daily price movements of Nvidia's shares. The second ETF, the Direxion Daily NVDD Bear 1x Shares ETF, allows bearish investors to profit when Nvidia's shares decline.

These single-stock ETFs, introduced in 2022, offer investors the opportunity to capitalize on the performance of a specific stock. However, due to their leveraged nature, they also carry increased risk. The use of derivatives allows asset managers to deliver the promised returns, but if the market moves against investors, losses can be substantial.

Bryan Armour, Director of Passive Strategies Research at Morningstar Inc., cautions against buying a 1.5x return ETF solely based on Nvidia, emphasizing that it is a speculative investment. This sentiment is echoed by Direxion's own disclaimer on its suite of inverse and leveraged ETFs, which states that these products are “for traders averse to risk averse.”

Direxion has previously had success with leveraged single stock ETFs, most notably its Direxion Daily TSLA Bull 1.5x Shares ETF. With assets of $1.1 billion, it is the largest among the few similar funds available.

While the excitement surrounding Nvidia and artificial intelligence presents potential opportunities for investors, it is important to carefully consider the associated risks. Only a handful of companies have ventured into the realm of single-stock ETFs, and caution is advised.

– Suzanne McGee, Reuters
– Morningstar Inc.