What Is a Single-Stock ETF?
New single-stock ETFs come with plenty of risk and work best for traders with very short time horizons.
![green foil balloon shaped like the number one](https://cdn.mos.cms.futurecdn.net/qi36KjjPCCkMDnTMtqZx2h-415-80.jpg)
The exchange-traded fund (ETF) industry is nothing if not innovative. And if you've got a strong appetite for risk and a very short outlook, a host of new ETFs will allow you to make outsize bets, up or down, on some of the market's most meme-worthy stocks.
Single-stock ETFs use derivatives to give you a leveraged or inverse position in stocks such as Apple (AAPL), Coinbase (COIN), Nvidia (NVDA), PayPal (PYPL), Tesla (TSLA) – even Nike (NKE) and Pfizer (PFE). A leveraged bet means your returns will be amplified beyond the underlying stock's performance; an inverse bet generally means you're expecting the underlying share price to fall.
For example, the TSLA Bear Daily ETF (TSLQ, $38) from AXS Investments, an inverse ETF, will gain 5% on a day when Tesla shares drop 5%; Direxion Daily TSLA Bull 1.5X Shares (TSLL, $26) would deliver a 7.5% loss that day (or a 7.5% gain on a day Tesla stock is up 5%).
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Many of the new funds come with pricey expense ratios. Single-stock offerings from AXS and GraniteShares have a 1.15% expense ratio; Direxion has rolled out single-stock ETFs that charge 0.97%.
ETF analyst Aniket Ullal, of investment research firm CFRA, counts 16 single-stock ETFs so far, with collective assets of about $116 million. "You're going to see a proliferation of these products, but only a handful will be successful," he predicts.
Keep an Eye on the Calendar
The key to remember is that these funds are rebalanced daily, and they work best for traders with a similar time horizon.
"These are very clearly tools for day traders – and I mean literally a day," says Dave Nadig, a financial futurist with investment research firm VettaFi.
With these ETFs, the arithmetic of compounding simply doesn't work for someone expecting to earn the indicated daily return over a longer period, especially in a volatile or choppy market. In that scenario, for example, it would not be unusual to see a stock price finish flat after bouncing around over the course of a month or more while the ETF tracking the stock finishes down sharply over the period.
"I scratch my head and ask why any individual investor would need something like this, when realistically there's a high probability they could lose a lot of money," says Eric Diton, president of The Wealth Alliance, an investment advisory firm. "There's enough octane in the stock market as is."
Approval of the new securities from regulators at the Securities and Exchange Commission in July came with reservations and caveats. "I have expressed concern about leveraged and inverse ETFs before," said commissioner Caroline Crenshaw. "I worry that these single-stock ETFs pose yet another, perhaps greater, risk for investors and the markets."
The concept behind these securities isn't entirely new. Leveraged and inverse ETFs that track stock indexes have been around for years, as have single-stock ETFs in Europe.
For the narrow segment of high-conviction traders who monitor their portfolios daily and want to risk concentrated bets – let's say you believe an upcoming earnings report could be explosive for a particular stock, for instance – the ETFs provide convenience and even some downside protection. For example, traders using margin loans to effect the same kind of leverage risk losing more than the cost of their investment if the market moves against them.
"With single-stock ETFs, you cannot lose more than you invest," says AXS CEO Greg Bassuk.
"My view is that these ETFs have a place in the market," says CFRA's Ullal. "But they need to be accompanied by a lot of investor education, a lot of disclosure and, hopefully, some responsible marketing on the part of the issuers."
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage, authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.
-
Eight Key Steps to Take When Investing in the Stock Market
The stock market can be a confusing place for beginners, but it doesn't have to be.
By Kiplinger Advisor Collective Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Stock Market Today: Mega-Cap Tech Rallies to Drag Markets Higher
Markets focused on upcoming earnings from Magnificent 7 stocks rather than chaos in D.C.
By Dan Burrows Published
-
Stock Market Today: Dow Sinks 533 Points as Big Banks, Mega Caps Slump
Goldman Sachs and Apple were two of the worst-performing blue chip stocks on Thursday.
By Karee Venema Published
-
Stock Market Today: Semis Get Slammed and Blue Chips Bounce
The potential for more curbs on tech sales to China set off a rotation into blue chips.
By Dan Burrows Published
-
Stock Market Today: Dow Adds 210 Points as Apple, Goldman Hit New Highs
A big rally in blue chips and some dovish Fed speak boosted the equities market Monday.
By Karee Venema Published
-
Stock Market Today: Markets Mixed as Rising Rate-Cut Bets Boost Small Caps
A surprisingly soft inflation report sparked a rotation from mega-caps into riskier names.
By Dan Burrows Published
-
Stock Market Today: Markets Surge on Dovish Remarks From Powell
The S&P 500 topped 5,600 for the first time ever, boosted by mega-cap tech stocks.
By Dan Burrows Published
-
Stock Market Today: Markets Hover Near Record Highs on Powell Testimony
Stocks were little changed on light volume as the Fed chief testified before Congress.
By Dan Burrows Published
-
Stock Market Today: S&P 500 and Nasdaq Hit Records as Jobs Growth Slows
An uptick in the unemployment rate amid a cooling labor market could accelerate the Fed's rate-cut timeline.
By Dan Burrows Published