Leveraged equity ETFs popular as investors bet on market recovery

Leveraged equity exchange-traded funds have seen a surge in inflows this month as some investors seek to position for amplified gains when markets recover from a selloff induced by U.S. President Donald Trump’s trade tariffs.

According to LSEG Lipper data, leveraged equity funds have received inflows of $10.95 billion so far this month, already surpassing a 5-year high of $9.2 billion recorded last month. The previous peak was in March 2020, when markets were pummelled by the COVID crisis.

Leveraged equity funds are designed to deliver multiples of the daily returns of an underlying index such as S&P 500 or Nasdaq 100. They are especially popular among retail investors who want to avoid futures markets, where volatility can trigger margin calls or forced selling if prices fall.

Since Trump announced reciprocal tariffs on April 2, the MSCI World Index is down more than 3%, while the S&P 500 and the Nasdaq indexes are down 5% each.

Losses were steeper initially but there has been a recovery in markets after his decision to pause those tariffs by 90 days.

Rob Kane, director of alternative investments at Commonwealth Financial Network, said inflows into leveraged ETFs were largely driven by expectations of imminent Federal Reserve rate cuts and the view that tariffs were being used as leverage in broader trade negotiations.

“Initial over-reactions driven by investor sentiment have often reversed quickly, and the short-term performance nature of leveraged ETFs, combined with the substantial gains they can generate, makes them a tactical tool for capitalizing on heightened price dislocations,” he said.

These funds have gained popularity, thanks to the rise of trading platforms such as Robinhood, which offer ease of access to these types of ETFs for retail investors.

Revenue from Nasdaq’s financial technology business climbed 10% from a year ago to $432 million, while revenue at the company’s solutions business rose nearly 9% to $947 million.

“The current macro environment, recent policy shifts and ongoing talks about potential tariffs have created significant short-term volatility, and that uncertainty is at this point weighing on global GDP growth expectations,” Nasdaq Chair and CEO Adena Friedman said in an analyst call.

“Entering the second quarter, this is creating modest impact on the timing of corporate decision-making, although without a meaningful change in overall demand across all economic cycles,” she said.

Net revenue in the quarter came in at $1.24 billion, above analysts’ expectation of $1.23 billion, according to data compiled by LSEG.

Net profit attributable to the company on an adjusted basis was $456 million, or 79 cents per share, in the first quarter ended March 31, compared with $367 million, or 63 cents per share, a year earlier.

Analysts on average had expected a profit of 77 cents.