3X Tech Leverage ETN Lost 87% in 2022; New Version Carries Same Concentration Risk

FNGU represents a concentrated bet on a small group of expensive, growth-oriented technology leaders amplified by daily leverage. The ten-stock equally weighted index creates a 10% allocation per holding before any leverage is applied; three times daily leverage then scales each stock's economic sensitivity to roughly 30% per rebalance. The body notes that several constituents share overlapping exposures—artificial intelligence spending, cloud computing, digital advertising, and growth-stock valuations—which heightens the risk if the tech/AI theme enters a period of underperformance.

The 2022 precedent is instructive but not directly comparable. The previous FNGU, which followed the same strategy, lost roughly 87% that year; however, the current FNGU is a newly issued security (relaunched in June 2025) and did not experience that decline itself. Nonetheless, the body uses the predecessor's performance to illustrate what three times daily leverage can do in a bear market: a 50% loss requires a 100% gain to recover, but an 87% loss requires approximately a 669% gain—effectively a near-total wipeout of capital. For a $100,000 position, such a decline would leave roughly $13,000.

A critical mechanical risk is daily leverage reset. FNGU does not promise three times whatever the FANG+ Index earns over a month or year; it targets three times the daily return, and leverage resets after every trading session. The body illustrates the erosion: an index that falls 10% and then rises 11.1% returns to its starting point, but a simplified 3X product falls 30% on day one and gains roughly 33.3% from the reduced balance on day two, ending down about 6.7%. Repeated volatility erodes returns even if underlying stocks eventually recover. The Bank of Montreal describes FNGU as a daily trading tool for sophisticated investors rather than a buy-and-hold holding, reflecting this path-dependent compounding risk.