Anyone who happened to be holding a leveraged Netflix ETF leading up to last week’s news likely got stung … stranger things have happened.

The company’s blockbuster deal with Warner Bros. Discover sent Netflix’s stock lower, and the target’s stock upward, amid news of a hostile takeover bid by Paramount Skydance and indications by President Trump that he’s not in favor of the acquisition. With Netflix stock down 9.4% over the past five days, 2X leveraged ETFs are unsurprisingly down by about twice that amount. But the stock and corresponding leveraged ETFs are a case study in “decay,” or the tendencies of such products to considerably lag the securities they’re designed to track, particularly when stock prices are volatile. For example, while Netflix stock is up by 9% year to date, the Direxion Daily NFLX Bull 2X Shares (NFXL) is down by 5.5%. If clients are trading leveraged ETFs on the side, advisors might want to help them understand this.

“These are path-dependent,” said Ed Egilinsky, head of global sales and alternatives at Direxion. “After one day, there is going to be compounding. And that leverage can work for or against you … If something is volatile, with not a lot of directional movement, you can lose a lot of money.”

Don’t Look Up (or Down)

That largely explains not only why NFXL is down while the stock is up, but also why Direxion’s Daily NFLX Bear 1X Shares ETF (NFXS) is also down, in that case by over 14% year to date. The divergences in returns support something that the company makes clear about leveraged ETFs: They are intended for experienced traders and not meant to be held for very long.

There are two reasons why leveraged ETFs almost always lag their target stocks over time:

• Volatility decay: “When a stock or an investment loses a certain amount of money, it needs to go up by a higher percentage to get back to even,” Morningstar manager research analyst Zachary Evens said. “Leveraged ETFs multiply that effect.”
• Roll cost: The cost of options used by funds is an incremental charge that isn’t very noticeable on an intraday basis. “This is a built-in mechanism that will lose the fund money over longer periods of time,” Evens said.

Patterns Emerge: As shown by Netflix’s top movie of all time, KPop Demon Hunters, what’s apparent on the surface can be different from what’s below. For leveraged ETFs, that comes down to swaps. “It’s hard for investors to see what’s actually inside them,” said Michael Martin, vice president of market strategy at TradingBlock, pointing to NFLX’s 14.5% allocation to stock with the remainder going to swap agreements. “The leverage does not come from the swap contract. It comes from the ETF choosing to size those swaps at two times the fund’s assets.”

Leveraged ETFs are like matches: Useful, but hold them for too long and you risk getting burned. As Direxion’s Egilinsky noted, every day is a new day. “Your timing matters here,” he said. “These are basically high risk, high reward vehicles.”

Ethereum staking just got a big endorsement from the dominant player in the ETF market.

BlackRock filed with the Securities and Exchange Commission on Monday for the iShares Staked Ethereum Trust ETF, which would expand its small but massively popular roster of crypto funds. It would be the first iShares product to utilize staking, or lending of digital tokens for the network’s consensus mechanism in return for additional ether.

“Anything BlackRock does is significant,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “For advisors, having iShares on the label is huge.”

I Share the Market?

Of course, BlackRock extending into staked Ethereum may also mean that the company eventually captures most of the market share. In the case of Bitcoin, it certainly has, with its flagship crypto fund, IBIT, reaching nearly $100 billion in assets earlier this year, though since falling to $70 billion amid a price crash and resulting outflows. The company’s existing Ethereum fund (which doesn’t use staking) isn’t far behind on the leaderboard, representing the fourth-biggest crypto ETF, at over $11 billion. Bitcoin ETFs aside, that was the fastest ETF ever to reach $10 billion, Balchunas said. “They’ve got a mega-hit on their hands.”

As to why the company would offer both staked and unstaked versions, “it’s really about giving people choice,” he said. “Some people don’t want the yield for tax reasons.” Still, the staking yields for Ethereum are small (2-3%) compared with those of Solana (7-8%), he noted. The first US ETF to offer staking, the Rex-Osprey SOL + Staking ETF (SSK) launched in July and now represents about $190 million. Rex-Osprey launched a staked Ethereum ETF in September, but that product remains small, at less than $3 million in assets.

Even if BlackRock gobbles up the market share, there may be room for other asset managers:

• The iShares Ethereum Trust represents 55% of the Ethereum ETF market, but there are 26 other funds out there among more than 20 competitors, Balchunas said.
• About 10 have more than $100 million in assets, showing they are profitable, and five have more than $1 billion, he said.
• “There’s room for other people to eat, simply because the pie is so big,” he noted. Also, it helps that iShares (and others) don’t have to compete with the likes of Vanguard, he said.

Massive and Passive: “There is always an appeal to passive income, and since there aren’t many sources of it, staking is a compelling option,” said Kevin Feig, founder of Walk You To Wealth. With staking becoming more common among more crypto ETFs soon, such products will be compared to interest-paying bond funds or dividend-paying stock funds, he said. “Much like I wouldn’t recommend investing in a stock only because of the dividend, I wouldn’t invest in ETH or SOL simply because of staking, but if you already believe in the digital asset, staking now offers an income opportunity.”

The word “record” gets thrown around a lot these days, but at least in the ETF industry, it’s for good reason.

Inflows have already surpassed $1.25 trillion so far this year and are on track to top $1.4 trillion by year’s end, already exceeding last year’s record of $1.1 trillion. The growth was driven primarily by active fixed-income products, according to two recent reports from State Street and Janus Henderson. The reports predict high active fixed-income inflows next year following uncertainty around monetary policy and tariff-driven volatility in the first half of the year. By keeping on top of flow trends, advisors can stay ahead of headwinds heading into the new year.

“Active management can pull on a lot of levers in terms of credit analysis and duration management,” said Matt Bartolini, State Street’s global head of research. “You’re seeing that come into play with flows … Those [flows] are just big, secular, ongoing, very consistent, and likely to continue into 2026 as well.”

Active Activity

Active fixed-income strategies, which combine active bond selection with the ETF wrapper, took in 33% of November’s inflows and 40% for the year. Part of the appeal is the sense of security they offer during times of market volatility, with adoption picking up during the downturns of 2008, as well as 2020’s pandemic and 2022’s high inflation. The tariffs imposed by the Trump administration in early 2025 added to their popularity. “The shaky market returns in November likely propelled the inflows, despite looming Fed rate cuts in December and into 2026 that will reduce the yield on those instruments even further,” State Street’s report notes.

According to the report:

• Short-term bond ETFs grew by more than $10 billion in November alone.
• Low-cost fixed-income ETFs took in 42% of overall fixed-income flows, while active fixed-incomes took in 40%.

Surprise, Surprise, It’s AI. Another major driver of ETF inflows has been emerging market funds, which rebounded after a slow start to the year. Emerging markets ETFs drew in $7 billion last month, their fourth-best monthly inflow ever, in part due to interest in international AI innovators.

“China, while behind the US in terms of innovation and impact, is the secondary leader here in terms of AI [and] its impact on the broader economy,” Bartolini told ETF Upside. “You have all of these things lining up: a reversal of sentiment … and really an underrepresented acknowledgement that EM is AI.”