Leveraged ETFs have hit the Australian investing scene with the force of a cyclone—promising amplified returns (and losses) for those willing to embrace extra risk. With new offerings and regulatory scrutiny in 2025, these turbocharged funds are attracting both excitement and caution. But what exactly are leveraged ETFs, and should they have a place in your portfolio?
How Leveraged ETFs Work: The Basics
Unlike traditional exchange-traded funds, leveraged ETFs use financial derivatives and debt to multiply the daily returns of a benchmark index—sometimes by two or even three times. If the ASX 200 gains 1% in a day, a 2x leveraged ETF tracking it aims to deliver a 2% return. The catch: losses are also amplified, and compounding can make long-term results unpredictable.
- Daily Reset: Leveraged ETFs reset their leverage ratio every day. Over longer periods, this can cause returns to diverge significantly from what simple math would suggest, especially in volatile markets.
- ASX Listings: Australian investors can now access several leveraged ETFs from issuers like BetaShares and Global X, tracking indices such as the S&P/ASX 200, Nasdaq-100, and S&P 500.
- Short & Long Options: Some ETFs offer double exposure to market gains (bull), while others profit from declines (bear).
2025 Market Trends: Why Leveraged ETFs Are in the Spotlight
Leveraged ETFs have surged in popularity as Australian investors chase higher returns amid market uncertainty. In 2025, several key trends are shaping the landscape:
- Growth in Trading Volume: The ASX reported a record 35% increase in leveraged ETF trading volume in Q1 2025, fueled by younger and more risk-tolerant investors.
- New Product Launches: BetaShares launched the Leveraged Australian Equities Fund (ASX: LNAS) and Global X introduced a 3x Nasdaq-100 ETF, expanding options for those seeking aggressive strategies.
- Increased Volatility: Ongoing global rate changes and tech sector swings are attracting active traders to leveraged products in hopes of quick gains.
However, this popularity comes with a warning. The Australian Securities and Investments Commission (ASIC) has flagged leveraged ETFs as complex products and, in early 2025, introduced new disclosure requirements to ensure investors understand the risks.
Risks, Rewards, and Regulatory Crackdown
The potential for outsized gains is real—but so is the chance of rapid losses. Leveraged ETFs are not for the faint-hearted or passive investors. Here’s what you need to consider:
- Compounding Risk: Because leveraged ETFs reset daily, holding them for more than a day can produce results that differ wildly from the underlying index, especially in choppy markets.
- Volatility Drag: In sideways or volatile markets, the ETF’s value may erode over time—even if the index ends up where it started.
- Increased Regulation: ASIC’s 2025 rules require ETF providers to include prominent risk warnings and restrict sales to investors who pass a suitability test. This follows reports of retail investors suffering steep losses after misunderstanding product mechanics.
- Liquidity & Costs: Management fees for leveraged ETFs tend to be higher, and spreads can widen during volatile periods, impacting returns.
Example: If you had invested $10,000 in a 2x leveraged ETF tracking the S&P/ASX 200 during a week of 3% up and 3% down swings, you could end up with less than your starting amount—even if the index finished flat—due to compounding and volatility drag.
Should You Use Leveraged ETFs in 2025?
Leveraged ETFs can be powerful tools for experienced investors aiming to tactically trade short-term market moves. They’re not suitable for long-term, buy-and-hold strategies or for anyone uncomfortable with the prospect of rapid, amplified losses.
Before diving in, ask yourself:
- Can you monitor positions daily and act quickly?
- Do you understand the mechanics and risks, including compounding and volatility drag?
- Are you prepared for ASIC’s new suitability requirements and disclosures?
For most Australians, leveraged ETFs should be approached with caution, if at all. If you’re tempted, start small, use limit orders, and treat them as speculative tools—not core portfolio holdings.
