Wall Street's leveraged-stock boom accelerates with MUSK fund

A little-known ETF firm is the latest to tap into relentless day-trader demand for leveraged stock bets, just as volatility lashes Wall Street.

Quantify Funds, based in New York, has filed to list 10 derivatives-powered products, each holding a duo of stocks from a list that includes crypto-exposed companies, like Coinbase Global Inc. and Strategy, and technology megacaps such as Meta Platforms Inc. and Amazon.com Inc. The idea is investors can get a $1 exposure in both stocks for every $1 invested in total. 

Speculative ETFs tracking just one or two securities are on the rise as issuers try to stand out from the competition and cater to the growing crowd of day traders. Turbocharged bets tied to single stocks like Nvidia Corp. (NVDL) or Strategy (MSTU) lured billions of dollars last year as gamblers piled in to ride the equity rally. 

It’s not for the faint of heart. On Monday, a slew of leveraged ETFs bore the brunt of the selling as stocks retreated on tariff and growth concerns. NVDL slumped 17%, while ProShares UltraPro QQQ (TQQQ), an ETF that’s designed to deliver three times the daily returns of the Nasdaq 100, dropped more than 6%. 

One of the proposed ETFs, which owns Tesla Inc. and Nvidia, is offered under the ticker — MUSK, making clear its intent to attract the risk-gorging, Elon Musk-loving retail army. 

The products will be launched as early as this week, according to people familiar with the situation. A spokesperson for Quantify Funds declined to comment on the new offerings, citing the regulatory quiet period after filings. 

By touting a $1 outlay for a $2 exposure in total, the new offerings are marketed under the return-stacking banner, a variant of portable alpha, though some in the industry would dispute that characterization. 

This kind of investing style uses derivatives to get full exposure to the market — known as the beta — while allocating excess cash to active allocations, or alpha. It’s proved a hit among diversification-minded money managers of late, who are looking for cost-effective ways to ride the upside in stocks while freeing up money to invest elsewhere, like managed futures.

What’s missing in the Quantify Funds offerings, though, is the vanilla index component, or beta, meaning the oncoming products are highly correlated bets on already volatile equities.

It’s “whacky,” said Todd Sohn, an ETF strategist at Strategas Securities. “The benefit is more targeted exposure with less resources. The risk is both assets decline.”

Quantify Funds, established in July 2023, plans to employ swaps and options to augment exposure to each holding, and charge 1.29% annually for management fees. Last October, it launched the STKd 100% Bitcoin & 100% Gold ETF (BTGD) in alliance with Newfound Research and Resolve Asset Management, firms that are the first to bring the concept of portable alpha to the ETF market under the “stacked return” branding. 

All told, ETF products that use derivatives to make amplified wagers on single stocks or indexes have amassed $86 billion of assets in the US, with the vast majority betting on gains, data compiled Bloomberg show.