From 2x To 3x: Behind the Rise of Leveraged Single-Stock ETFs

You might think 2025 has plenty of built-in risk. Some fund managers, however, are betting investors want more.

A flurry of 3x filings hit the SEC’s desk this past week from Defiance ETFs, Themes ETFs and Direxion, according to a recent report from Bloomberg. ProShares also filed Monday for an array of single-stock offerings, holding companies like Amazon and Nvidia but also cryptocurrencies like Bitcoin, Solana and Ether. The products are the latest example of issuers displaying an appetite for risky ETFs and betting that regulators will prove willing to move beyond their prior opposition to 3x strategies. Despite the frenzy, however, experts said the average retail investor should be cautious about getting involved with 3x funds.

“They’re great tools for day traders,” said Brian Glenn, chief investment officer at Premier Wealth. “For our space, wealth management, I think they’re generally horrible.”

Risk, Amplified

Leveraged ETFs work by amplifying the performance of their underlying holdings by a set multiple: if a stock is down 10%, its 2x leveraged ETF would be down 20%. In 2020, the last year of President Donald Trump’s first term, the SEC established a framework prohibiting the creation of new 3x leveraged ETFs, setting a maximum leverage of 2x. As a result, the approval path for current 3x filings is murky at best, with issuers likely betting on a more lax regulatory environment in Trump’s second term. “I’m not sure how exactly these new filings are betting on going through,” said Morningstar research analyst Lan Anh Tran. “It’s either a bet on a change in the framework at the SEC, or a change of mind from the regulators.”

Other recent filers include:

• REX Shares, which filed Tuesday for 59 new 3x single-stock leveraged funds, holding companies like Google, Robinhood and Uber.
• Tidal Financial Group, which filed in June for 12 “LevMax” ETFs holding stocks ranging from Reddit to Palantir.

Glenn thinks the rising number of 3x filings is the result of a few developments. One is broker-dealers wanting to be a one-stop shop for investors; another is the rise of a prolific gambling culture. Many products will close as they lose assets and as the current crop of stocks they’re based on lose notoriety, he added. “In 20 years, with Tesla or Nvidia — it will be like today, if we had an IBM 3x ETF. No one really cares about trading IBM in a leveraged fashion,” Glenn said. “That’s just the life cycle of a company. I imagine as an individual product, they’ll cease to exist, and money leaves, and then they close down.”

Useless Case? For most investors, leveraged single-stock funds aren’t a wise choice, Tran said. The only scenario in which they might work out well is with an underlying holding that increases slightly day by day, but that’s not typically how stocks move. “The more leverage you have … the more you have to make back [when the stock is down],” Tran said. “Usually they don’t make back that much to crawl themselves out of the hole that they dug themselves in.”