The recent proliferation of leveraged ETFs may be overshadowing a big jump in closures of such risky funds
The ETF industry is on pace for a record number of new product launches in 2026. But in one popular corner of the market, closures are quietly growing as well.
Exchange-traded funds designed to allow traders to place magnified bets on stocks and other assets have seen a surge in investor interest in recent years.
But as the pace of new product issuance continues to broadly boom in the ETF industry, the number of these so-called leveraged and inverse funds that are being quietly shut down is on track for a record, too.
A total of 73 leveraged and inverse ETFs have closed in 2026, according to Morningstar Direct data as of July 23. That figure far exceeds the 22 total closures seen in all of 2025, while accounting for about 43% of all U.S.-listed ETF closures this year.
Leveraged ETFs and their siblings, inverse funds, are risky, and their frenzied proliferation that kicked into overdrive 2025 may be overshadowing their big jump in closures this year.
Investors may be overwhelmed by the recent surge in leveraged and inverse ETFs, which typically use derivatives to amplify daily gains on individual stocks as well as other assets. Leveraged funds tied to cryptocurrencies, equity indexes and commodities like gold (GC00) also exist.
In many cases, multiple funds offering investors essentially the same leverage profile on the same stock are being launched. Amid the relentless tide of new products, an ETF that fails to attract enough assets quickly enough following its debut could be at risk of closure, according to Daniel Sotiroff, Morningstar's associate director of ETF and passive-strategies research for North America.
Because of how these products are designed, investors who hold them for longer than a day take the risk that "volatility decay" may erode some or all of their winnings, Sotiroff said.
Investors can also get burned if a sudden burst of extreme volatility in a stock targeted by one or more leveraged funds leads to a liquidation. This has been a relatively rare occurrence in the U.S. - but it does happen.
The GraniteShares 2x Long LCID Daily ETF, whose leveraged strategy of seeking two times the daily percentage change of electric-vehicle company Lucid Group's shares $(LCID)$, was one recent example. The ETF plunged about 51% on July 14, wiping out the fund's net asset value. That resulted in GraniteShares announcing that same day that it would initiate the ETF's delisting from the Nasdaq.
While shares of the ETF no longer trade, the fund was still in the process of delisting as recently as Friday, Matt Lamb, portfolio consultant at GraniteShares, told MarketWatch.
In a notice on the ETF's dislisting posted on the firm's website, GraniteShares noted that the fund's prospectus disclosed the risk that the leveraged ETF could lose more than its net assets should a daily drop in the underlying stock's exceed 50%, and that the swap counterparty may then immediately close out the swap transaction used to achieve the goal of delivering 200% of the stock's daily percentage move.
To be sure, losses from these products can still be painful for traders, even when a bad day doesn't result in a blowup. Just last week, the Direxion Daily TSLA Bull 2X ETF TSLL, a leveraged ETF linked to Tesla's stock $(TSLA)$, plunged 29.2% on July 23 as Tesla's shares slid 14.5%, FactSet data show.
Traders who use leveraged and inverse ETFs can quickly dig themselves into a deep hole that is "much more difficult to get out of," said Sotiroff, adding that those funds tied to single stocks are particularly volatile.
Last month, GraniteShares closed other leveraged and inverse funds. But that wasn't the result of sudden delistings sparked by huge drops; rather, the company determined that the ETFs weren't gaining sufficient traction with investors, according to Lamb.
The GraniteShares 2x Long ETOR Daily ETF and the GraniteShares 2x Long BULL Daily ETF - leveraged funds tied to shares of eToro Group $(ETOR)$ and Webull $(BULL)$, respectively - both closed in June, Morningstar data show. So did the GraniteShares 2x Short MSTR Daily ETF $(MSDD)$, an inverse fund that gave traders a way to amplify profits from a potential daily drop in shares of Strategy (MSTR) - the company formerly called MicroStrategy that's known for its large holdings of bitcoin (BTCUSD). GraniteShares had previously announced plans to close all three of the ETFs.
Some firms may be more willing to list several leveraged or inverse funds when they have a relatively large one in the lineup that's generating revenue from assets under management. Lamb said that GraniteShares benefits from the success of the GraniteShares 2x Long NVDA Daily ETF NVDL in attracting assets, which helps cover the cost of its smaller ETFs while also allowing the firm to be more patient before deciding whether to shut any funds down.
The GraniteShares 2x Long NVDA Daily ETF, which aims for two times the daily percentage change of artificial-intelligence-chip maker Nvidia's stock (NVDA), recently had around $3.6 billion in assets under management, according to FactSet data, at last check. As for fees paid by investors, the leveraged ETF has an annual expense ratio of 1.05%
The industry's largest leveraged ETF is the ProShares UltraPro QQQ TQQQ $(TQQQ)$, which seeks three times the daily performance of the Nasdaq-100 index NDX, according to Morningstar Direct data. The fund recently had around $33 billion in assets under management, FactSet data showed, at last check.
The booming U.S. ETF industry has seen 953 fund launches overall this year through July 23 - putting it on pace to exceed the record 1,095 launches seen last year. Leveraged and inverse ETFs have been a significant part of the recent surge, according to Sotiroff.
Recently, several such funds launched after SpaceX's initial public offering. Although investors can read the prospectuses for the risks associated with such short-term trading tools, Sotiroff suspects that many individual investors don't fully understand the risks involved.
"I would prefer that people just not use them, period," he said.
Amid the hot competition for investors' assets and the similarity of funds, many of the leveraged and inverse ETFs that have closed this year had only managed to attract a few million dollars in assets or less before shutting down, Sotiroff noted.
While it's "rare" for these kinds of risky ETFs to see their assets go all the way down to zero before closing, it is possible, said Sotiroff. Still, the success that some leveraged ETFs have had in gathering billions of dollars in assets shows there's appetite for risk-taking - with some people "actually willing to buy these things and play the short-term game with this stuff," he said.
-Christine Idzelis
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