In the month that issuers made a bold push for highly leveraged single-stock ETFs in the US, a tiny product across the Atlantic just showed how dangerous they can be.
GraniteShares was forced to shutter its 3x Short AMD exchange-traded product on Monday after shares of Advanced Micro Devices Inc. surged as much as 38%, wiping out its value. The ETP — listed in London and Italy — aimed to offer three times the inverse return of AMD’s shares and had gathered about $3 million in assets before its closure, according to data compiled by Bloomberg.
A notice on the GraniteShares website announced that “as the NAV is now zero, no redemption payments will be made. Trading in the affected ETP has been suspended and the securities will be delisted in due course in accordance with exchange procedures.” Will Rhind, CEO of GraniteShares, declined to comment.
The product’s implosion comes days after GraniteShares — and a handful of other issuers, including Defiance ETFs, ProShares and Direxion — applied with the Securities and Exchange Commission for leveraged products designed to deliver three times the daily return of some of the market’s hottest trades. Though such products already exist in Europe, they largely don’t trade in the US given volatility rules set by the regulator that cap how much leverage a fund can offer.
“I think this proves that blow-up risk is a real possibility for a 3x stock ETF,” said Bloomberg Intelligence’s Athanasios Psarofagis. “But I doubt even such an event will deter investors.”
US issuers have filed applications that, if successful, would add dozens of such products into the market. Among them are leveraged and inverse 3x funds centered on the often-volatile shares of companies such as Tesla Inc. and meme stocks like Opendoor Technologies Inc., as well as cryptocurrencies including Bitcoin, Ether and Solana.
The first filing, from Defiance ETFs, included 3x long and short AMD ETFs, while a ProShares filing and another from Leverage Shares included potential 3x AMD ETFs. GraniteShares submitted two applications — one for crypto-focused funds, and another for a pair that tracks Tesla.
The filings come after 2x funds proved wildly popular with American investors. How the proposed US vehicles intend to get around SEC volatility directives wasn’t immediately clear. They are, however, a step up the risk ladder in a rapidly growing market where issuers are forced to push the envelope in order to stay competitive.
“Single-stock blowups are practically inevitable, especially in today’s fast-paced environment,” said Todd Sohn, senior ETF analyst at Strategas Securities. “The question is: when does it arrive in the US, a much larger market?”
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