These ETFs Promise to Magnify Returns—but Look Out Below | The Informed Investor 64

This episode of The Informed Investor examines single-stock leveraged ETFs, including why investors use them and what leverage can do to returns. Dimensional's Mark Gochnour, Wes Crill and Jake DeKinder discuss volatility decay, short-term trading, downsides and closures in the category. The description notes more than 300 single-stock leveraged ETFs came to market from January through late September and that cumulative inflows over five years reached $55.4 billion.

1. Single-stock leveraged ETFs are designed to amplify exposure to an underlying stock; the description gives a hypothetical 2x NVIDIA ETF rising 10% when the stock rises 5%.
2. The description says leverage can require huge upside moves before an investor breaks even after a decline.
3. Volatility decay is described as a downside when leverage and daily compounding combine to create unanticipated declines or disappointing gains.
4. The episode discusses short-term trading, downsides and closures in the single-stock ETF category.