Welcome to ETF IQ, a weekly newsletter dedicated to the $14 trillion global ETF industry. I'm Bloomberg News reporter and anchor Katie Greifeld.

Stirring the Pot

This newsletter has mused before whether activity in leveraged single-stock funds has the potential to impact the underlying equity itself. This week, we got a little bit closer to seeing if the tail truly can wag the dog.

The Tradr 2X Long QBTS Daily ETF (ticker QBTX) launched on Friday, seeking to track 200% of the daily performance of D-Wave Quantum, a quantum-computing company that frequently posts double-digit swings in either direction. 

It’s important to note that D-Wave’s market capitalization is just $2 billion. While that’s not nothing, consider the fact that Strategy, previously known as MicroStrategy, is a $97 billion company — and you’ve still had the likes of Simplify’s Michael Green posit that MSTU in particular has managed to impact the stock itself. The risk of such a feedback loop developing in a $2 billion stock seems higher. 

“I call it the small pond problem. Every now and then, there’s a small pond with a small ETF launched, and that small ETF gets bigger than it thought it would get and all of a sudden, it does affect the small pond,” Bloomberg Intelligence senior ETF analyst Eric Balchunas told me on Bloomberg Television on Friday. “And so in this case, this stock is pretty small. If it were to become a huge hit — say, like $10 billion — it would definitely have an effect on the stock.”

To be clear, Balchunas is skeptical that QBTX will amass enough assets to make that big of a splash. While leveraged single-stock funds are extremely popular with traders, the largest ones are associated with household names such as Nvidia, Tesla or Strategy. But we’re very much in a “never say never” market, so who knows.

A representative for Tradr didn’t immediately respond to a request for comment.

Stormy Seas

Less than a month ago, the world’s first-ever catastrophe bond ETF set sail — a novel enough product that the fund launched without a lead market maker, as I reported at the time. A few weeks in, the Brookmont Catastrophic Bond ETF has also struggled to get the seed capital it expected. 

“Some of our seed capital investors are sitting on the sidelines because the market turmoil has taken people’s eyes off new asset classes,” said Ethan Powell, chief investment officer of Texas-based Brookmont Capital Management LLC, told Bloomberg’s Gautam Naik. “It’s a crazy environment,” and “we don’t want to be too pushy right now.”

As reported by Naik, Brookmont had intended to raise as much as $25 million in seed capital and eventually include as many as 75 bonds in the portfolio (ILS currently holds 16 bonds with a total asset value of about $6 million). However, while institutional investors had expressed interest in the ETF and “soft circled” additional investments, they’ve since backed away, Powell said.

A fair amount of that hesitation might come down to unlucky timing. ILS launched on the eve of the Trump administration’s tariff barrage, which has spurred the kind of market uproar that has sidelined deal flow and scared IPO candidates back into the pipeline. It would stand to reason that institutional investors might not want to dip their toes into a first-of-its-kind product in an esoteric asset class against such a backdrop.

But Powell is staying positive. 

“Part of me is happy we launched in the middle of all this volatility when even safe-haven assets got obliterated,” he told Bloomberg’s Naik, adding that cat bonds can serve as excellent diversification tools. 

“But I would have liked to have been a little earlier,” he said. “We could have told the story better.”

In Other News

Wild market gyrations fueled by Trump’s tariff war aren’t stopping issuers from rolling out a fresh crop of ETFs — many aimed squarely at investors with a taste for speculation.

A group of ETF traders are betting against a spirited rebound in the stock market, as they pay up for short positions and withdraw money from bullish strategies.

After years of diving into risky assets at every sign of trouble, investors are starting to move some of their money in the other direction — toward safety.

In this week’s Drill Down on Bloomberg Television’s ETF IQ, Rebecca Venter of Vanguard stopped by to talk about the recently launched Vanguard Short Duration Bond ETF (VSDB). Vanguard has been on a bit of tear when it comes to debuting new funds — by second quarter, the asset manager (which is known for a having a rather lean lineup) will have launched nine new fixed-income ETFs in 2025, if all goes according to plan. 

Now, VSDB is an actively managed ETF that invests across corporates, government debt and mortgages. For better or worse, Vanguard is best-known for its passive, index-tracking products rather than its active capabilities. So when Vanguard launches an active product, do they have to fight that bias? Yes, to an extent, Venter said:

We do have that conversation, where a lot of investors are surprised to know that we’ve been in active for quite some time. We actually started on the fixed-income side in active, with active muni funds that we started managing in-house in the late ‘70s. Some people are surprised to hear that. We do definitely have that conversation.

VSDB has accumulated $21 million so far and charges 15 basis points.

Travis Spence of JPMorgan Asset Management and Matt Collins of PGIM join me, Eric Balchunas and Scarlet Fu on Bloomberg Television’s ETF IQ. We’re live on Mondays at noon. Watch on Bloomberg Television’s ETF IQ, on the Bloomberg Terminal at TV <GO> and on YouTube.