Driving the Tesla Single-Stock ETF Highway

Single-stock exchange-traded funds are taking off faster than a Tesla Model S Plaid. 

More than two dozen stocks can now be purchased through single-stock ETFs and one of the most popular targets is the automotive company Tesla. Investors can now make bets on the iconic carmaker — and its famous founder (who some are calling the co-President elect) — in a handful of different ways. It’s like an exchange-traded showroom full of ways to test drive an electric-car fund.

Self-Driving ETFs

First of all, why would anyone want to consider a single-stock fund when they can simply own stock in the company? Because the funds can give investors double or triple the exposure of the ups and downs of that company’s fate, as judged by the stock market. ETFs are also tax advantaged and could give investors a way to limit their tax liabilities. 

When Tesla went public nearly 15 years ago, the stock exchange offered one model for investing in most individual companies: common stock. Now, for Tesla and many other high-flying companies like Nvidia, investors can own an ETF that multiplies the performance of that stock, either by boosting the gains or shorting underperformance. The ETFs also use covered calls and put writing. 

There are plenty of leveraged ETFs to pick from, but here are some of the most popular:

• The largest Tesla single-stock ETF by asset size is the Direxion Daily TSLA Bull 2X Shares (TSLL) that, like the name implies, provides twice the exposure to Tesla stock. It has about $3.4 billion in assets, according to Yahoo Finance data.
• The second largest Tesla ETF is the YieldMax TSLA Option Income Strategy (TSLY) with almost $1 billion in assets. The fund uses a covered call strategy that provides income, but also puts a cap on gains.
• The T-Rex 2X Long Tesla Daily Target (TSLT) also provides twice the exposure to Tesla and has some $500 million in assets. 

Of course, plenty of ETFs track indexes that are skewed heavily toward a small number of giant stocks. Tesla makes up more than 15% of the Fidelity MSCI Consumer Discretionary Index ETF (FDIS) and 10.5% of the First Trust Nasdaq Transportation ETF (FTXR), to name just two. That allows investors a lot of space (not an Elon Musk pun) between owning a stock like Tesla outright, and owning a broad market index fund.

Bottom Line. ETFs are so much more than your average index funds. They are like a giant financial salad bar, where the investor can mix ingredients to their specific preferences to get the meal they want. And with the increased emphasis on making America healthier, maybe more people will be hitting the salad bar.