Wild Leveraged Note Offers Five Times Nasdaq 100 Moves

(Bloomberg) -- With inflation surging and investors adjusting to a more hawkish monetary outlook, U.S. tech stocks face major headwinds in 2022. Fortunately for bulls, there’s a new -- and extreme -- way to boost returns.

Leverage Shares has just launched an exchange-traded note in Europe that aims to deliver five times the performance of the biggest ETF tracking American technology shares. The Leverage Shares 5x Long US Tech 100 ETP (ticker 5QQQ) uses margin to amplify the $205 billion Invesco QQQ Trust (QQQ), which follows the Nasdaq 100 Index.

While leveraged offerings are well-established in the global exchange-traded product industry, it’s rare to see such extreme amplification. And 5QQQ isn’t alone -- Leverage Shares also introduced a note providing five-times the $439 billion SPDR S&P 500 ETF Trust (SPY), for a broader bet on U.S. stocks.

“We’ve gotten requests for higher leverage on the long side,” said Oktay Kavrak, product strategist at Leverage Shares. “People want to add exposure to this and no one wants to deal with margin accounts, nobody wants to deal with margin maintenance requirement. It’s all about simplifying the whole thing by packaging all that.”

The arrival of 5QQQ and the Leverage Shares 5x Long US 500 ETP (5SPY) is another milestone in the often controversial market for products that use derivatives and margin to amplify returns or offer inverse exposure. Such ETPs have been at the heart of turmoil in volatility, oil, gas and more in recent years, with multiple liquidations wiping investors out when things go wrong.

Nonetheless, the chance to make big, bold bets continues to lure new cash. The ProShares UltraPro QQQ (TQQQ), a U.S. ETF offering three times the performance of the Nasdaq 100, has added $1.16 billion so far in December to take assets to $18.9 billion. September was its biggest month for inflows ever, with $2.66 billion poured into the fund.

While Leverage Shares has a slew of leveraged bearish products, it has decided against launching a note delivering five-times the inverse performance of QQQ, according to Kavrak. The daily volatility of the underlying index “would kill its performance quite quickly,” he said.

5QQQ and 5SPY have both listed in London and will debut in Paris and Amsterdam on Thursday. They each charge 0.15%. The products are intended for short-term trading and the recommended holding period for all of these leveraged products is one day, Kavrak said.

“These are definitely risky products,” he said. “These are for sophisticated investors, this is not for the average mom-and-pop investor. This is for people who know what daily compounding means.”

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