Standing Out From the Single-Stock ETF Crowd

As the Architect in The Matrix Reloaded put it: “the problem is choice.” 

That’s particularly the case nowadays for leveraged and inverse single-stock funds, which are coming to market en masse to take advantage of some of the hottest companies on the market. Most recently, a flurry of single-stock ETFs have launched offering exposure to SpaceX, but similar treatments have been given to NVIDIA, Tesla, Apple, Coinbase and MicroStrategy. With Anthropic and OpenAI IPOs on the horizon, we can expect to see more soon. It’s making for a complicated and confusing menu of funds for advisors looking to add leverage. 

“Marketing is huge in this space,” said Steve Foy, senior vice president of trading at Tidal Group. “Awareness is really the true differentiator.” 

Standing Out 

These types of funds have a short-term nature, so investors aren’t committing to an investment they’ll hold beyond a day or so. But they still have to decide between funds that are essentially offering the same thing, and often, for the same price. Morningstar analyst Zachary Evens agrees that brand awareness is key for issuers jostling for a spot in an investor’s portfolio. 

“There are a handful of single-stock providers that are fairly popular in the retail community, and the assets reflect that,” he added. “Brand awareness would make it potentially likely for a trader to go to one brand first over another brand just because they’re aware of this brand over another that might offer the same or competing product.” Morningstar’s database shows that there are 430 single-stock ETFs in the US, with the largest providers being Direxion, GraniteShares and AXS Investments. 

But branding isn’t the only differentiator: 

• Speed to market is another major factor “for everything that’s not the biggest stock story of the day,” Foy said. “It’s about being there first and being available.” That could mean offering a single-stock fund for a stock that’s not yet hotly watched, though it also means focusing on new, in-demand areas of the market. 
• Volume also matters, since investors want to be invested in a tight market. Tax management can play a role, too, Foy said, since investors typically don’t want to catch a dividend when only owning a fund for a few days. 

Risky Business: Single-stock ETFs can generate high returns, especially when offering 200% (or more) of the performance of an underlying stock that’s taking off. But they come with plenty of risks, including the potential for outsized losses. Evens said to also be wary of volatility decay, a phenomenon where even if the underlying stock price goes up over time, the ETF doesn’t gain the same amount and might actually lose money. “That’s why these products should not be held for extended periods of time,” he added.