Summary The T-Rex 2X Long MSTR Daily Target ETF has surged 800% since its launch, thanks to MicroStrategy's stock performance and a favorable market environment. MSTU's success is driven by fortunate timing, the emergence of single stock ETFs, and a significant Bitcoin rally influenced by a crypto-friendly Trump administration. Leveraged ETFs like MSTU can outperform their underlying assets significantly in low-volatility environments, as demonstrated by MSTU's more than 2x performance of MicroStrategy. Despite its impressive start, MSTU's future performance will be highly volatile and closely tied to Bitcoin's trajectory, offering both substantial upside and downside risks. For ETF issuers, the industry can be a fickle beast. Success is often dependent on factors that are outside of their control. If a fund launches at just the right time, it can come storming out of the gate. If it debuts right before a big market correction, its long-term track record could be tarnished for life. Even the most well-thought-out and backtested strategies can fail because they just failed to resonate with investors. Sometimes, it's just better to be lucky than good! If that's the case, the T-Rex 2X Long MSTR Daily Target ETF ( MSTU ) may have just hit the perfect storm! For a little background, MSTU aims to deliver twice the daily performance of MicroStrategy ( MSTR ). It works just like most other leveraged ETF products in that it resets its exposure every day. Its expense ratio of 1.05% reflects the need to continuously reset the fund's positions and is roughly on par with other similar leveraged single stock ETFs. MSTU is just over two months old, having launched on September 18th, but in that short amount of time it's managed to amass one of the most impressive starts ever. Since inception, the ETF is up 800%! Data by YCharts Obviously, MSTU can thank the performance of MicroStrategy for its success, the stock having risen more than 200% over that time. The rally is heavily influenced by the current run towards $100,000 for bitcoin, and has happened in anticipation of a more crypto-friendly environment under the new Trump administration. You may look at the returns of MSTR & MSTU and wonder why the latter has more than tripled the performance of MicroStrategy if it's only leveraged by a factor of two. The answer is in the volatility or relative lack thereof. Volatility is the enemy of leveraged strategies. With high enough volatility, leveraged products can produce negative returns even if the underlying security has risen in value. Take, for example, the case of the Direxion Daily Financial Bull 3x Shares ETF ( FAS ) and the Direxion Daily Financial Bear 3x Shares ETF ( FAZ ) during the financial crisis. You might think that FAZ would have delivered through the roof returns, given the carnage in the banking sector. Actually, it didn't! Data by YCharts The fund did well for a little while, but then the impact of volatility took over. The whipsaw volatility severely degraded the fund's performance, and the downswings ultimately weighed more heavily on returns than the upswings. From their launches in late 2008 through the end of 2009, both FAS and FAZ delivered huge losses despite having opposite strategies. MicroStrategy, on the other hand, has enjoyed a ride with relatively few volatile moves. Granted, a "small" move in MSTR might be 3% in either direction, but the stock price generally moved higher consistently throughout these past two months. Without the volatility to degrade performance, MSTU was able to take advantage of leveraged gains upon leverage gains to generate more than 2x performance. 3 Factors That Drove MSTU's Huge Success 800% returns over the course of two months are obviously incredibly rare, so it's important to understand why the stars aligned for MSTU. Let's run through the three biggest reasons explaining how this all happened. Fortunate Timing For better or worse, investors are performance chasers. If something is rising in value, people are going to naturally gravitate towards it. In the ETF world, the difference between failure and success can be when the fund launches. Just ask the issuer of any fund that launched in the 1st quarter of 2020. Some of those funds have managed to survive and enjoy longer-term success, but for many that track record is going to be an immediate turnoff. MSTU couldn't have debuted at a better time. Data by YCharts MicroStrategy's stock had been moving sideways from March to September. MSTU launched on September 18th and caught the absolute beginning of the current rally. Even if the fund debuted at any point earlier in 2024, it still would've caught that rally (and the total return would have looked even better had it launched at the beginning of the year). But isn't it more impressive to be able to say that it was up 800% in just two months instead of 11? Emergence of Single Stock ETFs Just a couple of years ago, single stock ETFs weren't even a thing. Today, they're a $27 billion category with nearly 100 ETFs in total. Plus, with more than $17 billion in net inflows year-to-date, this is a rapidly growing category. Single Stock ETF Flows (Strategas) Without the desire by issuers to offer investors leveraged and short strategies on individual stocks without the need for a brokerage or margin account, MSTU would never exist in the first place. It's this theme of constant innovation and meeting the demand of regular investors that brings these products to market. Bitcoin Rally I suppose it goes without saying that MSTU's monster returns wouldn't have been possible without the current rally in bitcoin. Data by YCharts Bitcoin had been moving sideways for much of 2024, but got new life around election time. The next Trump administration is likely to be much more crypto-friendly and that's been the major catalyst for MicroStrategy's meteoric rise in recent months. A $3 Billion Giant All of these catalysts have conspired to create about the best start imaginable for a new ETF. In just two months, MSTU has gone from nothing to more than $3 billion at its peak. Data by YCharts The AUM total of any leveraged fund will be volatile, but especially one that's based on MicroStrategy. The current trajectory is very likely unsustainable, but the returns of MSTU will live and die with bitcoin. If you feel that bitcoin is the currency of the future and REALLY want to go all in, this fund may be better than bitcoin itself. Be prepared for a wild ride, though. MSTU has become the most volatile ETF in the marketplace and, although it hasn't experienced it yet, downside risk will be as substantial as upside potential.
