Leveraged ETFs Gain Momentum as Borrow Demand Builds

Leveraged exchange traded funds have moved rapidly from the edges of the ETF market into one of its most closely watched growth stories. Once viewed largely as tactical instruments for sophisticated traders, leveraged ETFs are now attracting meaningful flows, heavy trading volumes and increasing attention from securities lending desks. Their appeal is straightforward: they allow investors to express short-term views with amplified exposure, often through a single ticker, at a time when market narratives are increasingly concentrated around a small number of high-volatility themes.

That concentration has been especially visible in 2026. The artificial intelligence infrastructure trade, continued volatility in semiconductor shares, renewed interest in crypto-linked equities and sharp moves in high-profile names such as Tesla, Nvidia, MicroStrategy and regional technology leaders have created ideal conditions for leveraged products. S&P Global ETF Intelligence data has highlighted the scale of the shift: leveraged ETF assets have been reported at close to $200bn in assets under management, while daily trading volumes across the category have risen sharply. In the US, leveraged and inverse ETFs accounted for a growing share of new ETF launches in the first half of 2026, with single-stock products tied to popular momentum names expanding particularly quickly.

The securities lending market is increasingly reflecting that broader change. Leveraged ETFs are not only being traded; they are being borrowed. In H1 2026, the top ten revenue-generating leveraged ETFs produced more than $113.2m in lending revenue. The list is dominated by products linked to the same market themes that have driven trading activity: electric vehicles, artificial intelligence, semiconductors, crypto proxies and high-beta regional technology exposure.

The most striking feature of the data is the balance between scale and scarcity. TSLL, the Direxion Daily Tesla Bull 2X ETF, generated the highest revenue at $22.2m, supported by more than $1.16bn of loan value and a volume-weighted average fee of 57.4bps. NVDL and SOXL also attracted loan values above $1bn, reflecting the depth of demand for AI and semiconductor-linked exposure. Yet the highest fees were concentrated in smaller, more specialized products. MSTU, BMNU and MSTX each generated between $8.1m and $10.3m of revenue despite loan values below $103m, because their average fees were close to or above 285bps.

This matters because lending revenue is rarely driven by size alone. It is the interaction between borrow demand, available lendable supply, utilization and fee levels that determines how valuable a security becomes to lenders. In leveraged ETFs, borrow demand can be amplified by the very characteristics that make the products popular with traders. Their daily reset, use of swaps and futures, and sensitivity to intraday moves make them efficient tools for short-term positioning, but also create opportunities for relative-value, hedging and directional strategies.

There are several reasons why these ETFs may be borrowed. The first is outright short-selling. A borrower may short a leveraged long ETF to express a bearish view on the underlying stock, sector or theme. Shorting a 2x or 3x product can provide a more capital-efficient way to position against a high-beta name than shorting the underlying security directly, although it introduces the complexity of daily compounding. The presence of two MicroStrategy-linked ETFs in the top ten, MSTU and MSTX, may point to this dynamic. MicroStrategy has become a liquid proxy for Bitcoin exposure, and leveraged ETFs linked to it can be used to express or hedge views on crypto volatility through listed equity market instruments.

The second driver is hedging. Investors with long exposure to high-growth technology, semiconductor or crypto-sensitive portfolios may borrow and short leveraged ETFs to reduce risk temporarily without selling underlying holdings. This is particularly relevant when market direction is uncertain but investors want to keep core positions intact. The AI trade has been a clear example. Strong earnings, hyperscaler capital expenditure and demand for advanced chips have supported enthusiasm for names such as Nvidia, SK Hynix, Micron and related suppliers. At the same time, valuations, crowded positioning and the speed of price moves have made investors more sensitive to downside shocks. Leveraged ETFs give traders a liquid, targeted instrument for managing that risk.

The third driver is market-making and ETF liquidity management. As assets and trading volumes grow, authorized participants and market makers need to manage inventories, hedge exposures and support secondary-market liquidity. Borrowing ETF shares can help facilitate short sales, creation and redemption activity, and arbitrage between the ETF, derivatives and underlying exposures. This becomes more important in products where the underlying exposure is less straightforward, such as single-stock leveraged funds, foreign equity-linked products or ETFs referencing fast-moving thematic names.

Recent financial market events have therefore created an important feedback loop. The popularity of AI, semiconductor and crypto-linked trades has encouraged issuers to launch more leveraged products. More products have broadened the toolkit available to traders. Greater trading activity has increased the need for borrow, hedging and liquidity support. In turn, securities lending desks are seeing leveraged ETFs become more relevant contributors to revenue, particularly where supply is limited and demand is concentrated.

However, the growth of leveraged ETFs also brings risks. These instruments are designed to deliver a multiple of daily returns, not long-term returns. In volatile markets, compounding effects can produce outcomes that diverge sharply from the performance of the underlying asset. For lenders, that does not undermine the revenue opportunity, but it does reinforce the importance of understanding borrower motivation, collateral quality, liquidity conditions and product structure. High lending fees can indicate valuable demand, but they can also signal crowded positioning or stress in the underlying trade.

The H1 2026 data suggests that leveraged ETFs are no longer a marginal feature of ETF securities finance. They sit at the intersection of three powerful trends: the rise of tactical ETF trading, the concentration of market leadership in a small number of volatile themes, and the growing use of ETFs as borrowable instruments in their own right. TSLL, NVDL, SOXL and the MicroStrategy-linked products show how quickly lending demand can build when investor attention, volatility and limited supply converge.

For securities lending participants, the message is clear. Leveraged ETFs are becoming an increasingly important part of the opportunity set, not simply because they are popular with traders, but because they provide concentrated, tradeable exposure to the market’s most active narratives. As long as investors continue to pursue, hedge and debate the direction of AI, semiconductors, electric vehicles and crypto-sensitive equities, borrow demand for these products is likely to remain a prominent feature of the securities lending market.