Leveraged ETFs vs. Direct Stock Exposure: A 5-Year Analysis of NVIDIA and NVDL

In the dynamic world of investing, the choice between leveraged exchange-traded funds (ETFs) and direct stock exposure often hinges on a nuanced understanding of compounding, volatility, and risk-adjusted returns. Over the past five years, NVIDIA (NVDA) and the GraniteShares 2x Long NVDA Daily ETF (NVDL) have provided a compelling case study for this debate. This analysis examines their performance from 2020 to 2024, highlighting the strategic trade-offs between 2x leveraged ETFs and individual equities.

Performance: Explosive Gains and Volatility

NVIDIA's five-year total return from 2020 to 2024 stands at 1,388.63%, transforming a $1,000 investment into $14,886.31 by year-end 2024 according to FinanceCharts. Annual returns reflect the stock's volatility: 122.26% in 2020, 125.48% in 2021, -50.26% in 2022, and surges of 239.01% in 2023 and 171.25% in 2024 as reported by FinanceCharts. By contrast, NVDL, a leveraged ETF designed to deliver 200% of NVIDIA's daily returns, achieved a total return of 1,870.62% over the same period according to Total Real Returns. This outperformance, however, comes with amplified volatility. For instance, NVDL's 2023 return of 414.89% and 2024 return of 332.10% as detailed in Total Real Returns starkly contrast with NVIDIA's 239.01% and 171.25% gains, underscoring the compounding effects of leverage.

Compounding and Leverage: A Double-Edged Sword

Leveraged ETFs like NVDL are engineered for short-term exposure, as their daily rebalancing creates compounding effects that diverge from the expected 2x multiple over longer horizons. For example, in 2022, NVIDIA fell 50.26% according to FinanceCharts, while NVDL declined by -28.20% as reported by Total Real Returns. This discrepancy arises because the ETF's 2x leverage is recalibrated daily, reducing the magnitude of losses during downturns. However, in volatile years like 2023 and 2024, the same mechanism amplifies gains.

A $1,000 investment in NVDL would have grown to $28,706.31 by 2024 according to Total Real Returns, compared to $14,886.31 for NVIDIA. This highlights the asymmetric nature of leveraged ETFs: they thrive in trending markets but underperform in choppy or sideways conditions.

Risk-Adjusted Returns: The Cost of Leverage

While NVDL's returns are impressive, its risk profile is markedly higher. The ETF's beta of 3.92 according to ETF Database indicates extreme sensitivity to market fluctuations, far exceeding NVIDIA's beta of approximately 1.5. This heightened volatility is inherent to leveraged products, which rely on derivatives like swaps and options to amplify exposure as detailed by Yahoo Finance. For long-term investors, this structure introduces "volatility decay," where the compounding of daily returns erodes performance over time. For instance, in 2020, NVDL returned 26.11% according to Yahoo Finance, significantly lower than NVIDIA's 122.26% gain, despite being a 2x leveraged product. This anomaly underscores the importance of aligning leverage strategies with market cycles.

### Strategic Implications for Investors The NVDL-NVDA comparison reveals critical insights for portfolio construction: 1. Short-Term vs. Long-Term: Leveraged ETFs are best suited for tactical, short-term bets. Their compounding effects make them unsuitable for buy-and-hold strategies, as demonstrated by NVDL's underperformance relative to NVIDIA in 2020 and 2021 according to Total Real Returns. 2. Volatility Management: Investors must weigh the potential for outsized gains against the risk of rapid capital erosion. NVDL's -28.20% loss in 2022 according to Total Real Returns pales in comparison to NVIDIA's -50.26% decline according to FinanceCharts, but the ETF's volatility remains a drag on risk-adjusted returns. 3. Leverage Ratio Clarity: Conflicting data on NVDL's leverage ratio (2x vs. 1.5x) according to GraniteShares highlights the need for due diligence. Investors should verify fund documentation to ensure alignment with their risk tolerance.

Conclusion

The 2020–2024 performance of NVIDIA and NVDL illustrates the strategic trade-offs between direct stock exposure and leveraged ETFs. While NVDL's 1,870.62% total return according to Total Real Returns outpaces NVIDIA's 1,388.63% according to FinanceCharts, the ETF's volatility and compounding mechanics make it a high-risk proposition. For investors seeking steady growth, direct ownership of NVIDIA offers a more predictable path. Conversely, those with a short-term horizon and appetite for volatility may find NVDL's amplified returns appealing-but at the cost of significant downside risk.