Speculative Investors Return to Leveraged ETFs Amid AI Volatility

Speculative investors are returning to leveraged exchange-traded funds following a period of high volatility in semiconductor and AI stocks. According to data from Bloomberg Intelligence, leveraged index funds have generated nearly $50 billion in wealth this year, while single-stock leveraged funds destroyed $4 billion in value.

Direxion LLC and ProShares LLC have seen significant activity, with approximately 900 leveraged ETFs attracting $3.7 billion in new capital over the past month. The Direxion Daily Semiconductor Bull 3X ETF received the largest share of these inflows, even as the fund suffered a 20% loss during that same period. This renewed appetite for risk is supported by a resilient economy and strong corporate earnings from the second quarter.

Market reactions vary by region. While U.S. investors have continued to buy during periods of market weakness, the Financial Services Commission of South Korea has implemented cooling measures. These regulations include higher minimum cash deposits and a halt to new listings following a sharp retreat in the Kospi that forced liquidations in the South Korean leveraged ETF market. Citadel Securities has characterized this global leverage reset as increasingly mature.