Leveraged ETFs promise a simple-sounding deal: double the daily move of a stock you like. Over the past year, that promise did not translate into double the profit for one of the market's most-watched names.
According to a report from 24/7 Wall St., the NVDL fund — designed to deliver 2x NVIDIA's daily performance — returned 17.21% over a one-year period, while NVIDIA stock itself rose 22.21%. In other words, an investor holding the leveraged product would have earned less than someone who simply bought the underlying shares, despite taking on considerably more risk.
The explanation, per 24/7 Wall St., comes down to how these funds are built. NVDL resets its leverage daily, meaning it aims to double NVIDIA's move each single trading day rather than over the full year. The report cites daily leverage resets, swap financing costs, and volatility decay as the mechanisms that erode returns the longer an investor holds.
The math behind volatility decay is unintuitive but unforgiving. A stock that swings sharply up and down before ending higher can leave a daily-reset leveraged fund well behind, because each day's gain or loss compounds from a new starting point. Add the ongoing cost of the swap contracts the fund uses to obtain leverage, and the gap widens with time.
NVIDIA has been among the most heavily traded stocks of the AI boom, and products offering amplified exposure to it have attracted significant retail interest. That makes the disclaimer buried in these funds' documentation — that they are designed as short-term trading tools, not buy-and-hold investments — more than a technicality.
Why it matters: the numbers show that a fund marketed as "2x" can quietly deliver less than 1x over a year, a gap that catches retail investors who treat these products as a simple way to bet harder on a stock they already believe in.