There’s a new Nvidia Leveraged ETF. Here’s what investors should know before buying.

Apparently everyone wants to know how to earn more money with Nvidia (NVDA 1.46%) stock. After all, its stock price has skyrocketed more than 900% in less than two years, making countless investors richer.

So what if I told you there was a new exchange-traded fund (ETF) designed to double the return on Nvidia stock?

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What is the GraniteShares 2x Long NVDA Daily ETF?

The leveraged ETF in question is GraniteShares 2x Long NVDA Daily ETF (NVDL 2.89%). Its operated by GraniteShares, a private ETF provider that “focuses on innovative, next-generation investment solutions.” The company was founded in 2016.

As for ETFsit is the stated investment objective is simple: “The fund seeks daily investment results, before fees and expenses, of 2x (200%) the daily percentage change in NVIDIA common stock.”

Soin theory, enough direct. Investors can expect to take the daily profit of Nvidia and then double itnot?

Not exactly — and that’s where things get more complicated.

How and why leveraged ETFs aren’t as simple as they seem

For starters, it’s important to remember what should be obvious – double returns mean both bigger wins and bigger losses. After all, Nvidia — just like any other stock — can go up and down in price. If it goes down, then this fund will go down even more.

Second, let’s remember what the GraniteShares 2x Long NVDA Daily ETF is it is promising to do (my emphasis): “Fund is looking daily investment results…”. That means it’s designed to track Nvidia’s one-day performance — not weekly or monthly performance. Over longer time periods, the fund’s performance may not match the stock’s performance.

Third, let’s examine another key phrase from the fund’s investment objective (my emphasis): “The fund seeks daily investment results, before taxes and expenses2 times (200%) the daily percentage change in NVIDIA common stock.” Of course, all ETFs charge fees, but this one’s expense ratio is 1.15%. That means that a Investing $10,000 in this fund will result in $115 in fees per year. In contrast, it costs nothing to buy and hold Nvidia stock (other than any transaction fees the broker may charge, if any). And Nvidia pays a modest dividend, ie shareholders actually be paid to hold the shares.

Next is the issue of performance. Here’s a three-month chart comparing Nvidia’s performance with of the fund.

NVDA Total Return Level data by YCharts.

As you can see, the ETF did does not generate twice Nvidia’s stock return over the past three months. Part of the deficit was due to taxes; some were due complicating factors related to decay and compounding options that I won’t go into here. In any case, the key takeaway is that at various times over the past three months, returns from holding the fund’s stock have been nearly identical to returns from holding Nvidia stock — even though investors might have expected much better returns of their investment. .

This it all leads to the final — and most important — takeaway: this fund it is not designed for investors — it means for merchants.

Again, this caveat is included in the fund’s investment prospectus: “The Fund should not be expected to deliver twice the cumulative return of NVDA for periods longer than one day.”

In other words, this the fund is designed to help traders enhance their returns or protect other positions in a portfolio. Long-term, buy-and-hold investors, be aware — GraniteShares 2x Long NVDA Daily ETF not the best way to take advantage of Nvidia. If this is your goal, simply buy shares of stocks.