‘Too Early’
While HACK used this momentum to keep growing, at one point climbing to more than $1.4 billion in assets, HAKK never expanded beyond $6 million.
Issuers of inverse and leveraged ETFs often "overestimate the market’s demand for leveraged, where it’s just too early in some cases," said Balchunas. But sponsors of the products, which represent around 2 percent of ETF assets and around 9 percent of trading volume, are in a unique position to shoulder that risk. Such issuers don’t necessarily have to compete to have the lowest fees because users hold the products for as little as a few hours.
"One thing people don’t realize is how much money leveraged issuers make, and how they don’t have to play the fee war game. If anyone can trial-and-error, launch-and-close, it’s leveraged issuers," said Balchunas.
Ironically, leveraged ETFs linked to the VIX have rarely had it better. The VelocityShares Daily 2x VIX Short Term ETN and ProShares Ultra VIX Short-Term Futures ETF collectively received $337 million of inflows last week, the most since 2016. Traders seem more willing or able than fund providers to bet on a resurgence of market jitters.
Other firms that are shuttering funds this month include Elkhorn Investments LLC, VanEck Vectors and ProShares Advisors LLC, which is closing 13 ETFs, including nine inverse and leveraged funds.
Still, just because some funds are closing doesn’t mean providers are giving up on them. Direxion’s O’Rourke said he still believes there’s potential for a leveraged ETF on the cybersecurity theme, similar to HAKK.
"We still think it’s something that may have some legs to it," he said.
HACC, anyone?
This article was provided by Bloomberg News.