Single-Stock ETFs Fail to Catch Fire

What was supposed to be one of the hottest trends of the year has ground nearly to a halt.

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Reviewed by: Heather Bell
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Edited by: Heather Bell

Single-stock exchange-traded funds were supposed to be the next hot thing, as a raft of filings this year suggested they’d flood the market and bring the ETF industry to another record year.  

Since the first funds began trading in July when AXS Investments issued eight of the ETFs, launches have petered out and inflows are declining. The funds, which have traded in Europe since 2018, are designed to surpass the performance of the underlying stock with the assistance of derivatives contracts. 

As of Dec. 13, 26 single-stock ETFs trade in U.S. markets, with a total of $286 million in assets under management. This is a drop in the bucket for the overall ETF market, which encompasses $6.6 trillion in assets across more than 3,059 listings. 

The bulk of the assets are in Tesla Inc.-focused funds. The Direxion Daily TSLA Bull 1.5X Shares (TSLL) has $117.9 million in AUM and is the largest single-stock ETF, while the second largest ETF in the group, the AXS TSLA Bear Daily ETF (TSLQ), has $64.4 million. In all, single-stock ETFs tied to Tesla stock have nearly $208 million in assets. 

The Innovator Hedge TSLA Strategy ETF (TSLH) offers exposure to Tesla stock, and instead of being leveraged or inverse, it hedges that exposure via options strategies. 

Single-stock ETFs arrived when almost every conceivable strategy and asset class had been covered by an ETF, and had the potential to open up a whole new category. Still, the interest has been lackluster. 

SEC Concerns 

While the leveraged and inverse ETFs focused on individual U.S.-listed securities came to market without much trouble and more than a little fanfare, multiple firms including Kelly Intelligence, Roundhill Investments and Tema Global, this summer filed for unleveraged single-stock ETFs targeting foreign-listed stocks. However, they all withdrew their filings for such products by the end of September, likely due to concerns from the Securities and Exchange Commission.

The SEC has indeed warned of the dangers of leveraged and inverse single-stock ETFs, issuing a statement prior to the launch of the first funds of that nature, with SEC Commissioner Caroline Crenshaw noting they could be useful to some investors but that they represent risks for investors and possibly the markets. 

The SEC’s unease with these products may be contributing to the lack of inflows and the drop-off in launches in this category. The future for the products remains murky. 

“I don't know if it's sponsors reevaluating, whether they haven't caught on and therefore [sponsors are] holding back—I'm not sure,” Aniket Ullal, CFRA’s head of ETF data and analytics, said Sept. 30 on ETF.com’s Exchange Traded Fridays podcast. 

“One thing is clear: They haven't been a home run off the bat. Either they're going to take time to pick up or they may not catch on entirely, but they certainly have not been a home run since day one,” he added.  

Single-Security ETFs 

ETFs that focus on single securities, not including stocks, have perhaps seen more success and may even hold more promise. 

F/m Investments rolled out four ETFs during the latter half of the year that invest in the most recently issued Treasury security within a particular tenor, with the funds rolling into the next security in that tenor when it is issued. Those funds have nearly $360 million in assets already, well over the amount spread across the 26 single-stock ETFs currently trading.  

And then there are the ETFs that offer strategies based on other ETFs. The AXS Short Innovation Daily ETF (SARK), which offers short exposure to the ARK Innovation ETF (ARKK), has $312.7 million in assets after launching in November 2021. Its companion fund, the $51.7 million AXS 2X Innovation ETF (TARK), launched this past May.  

 

Launch DateTickerFundAUM ($M)
7/14/2022TSLQAXS TSLA Bear Daily ETF64.4
7/14/2022NVDSAXS 1.25X NVDA Bear Daily ETF4.7
7/14/2022PYPTAXS 1.5X PYPL Bull Daily ETF1.4
7/14/2022PFELAXS 2X PFE Bull Daily ETF1.3
7/14/2022NKEQAXS 2X NKE Bear Daily ETF1.2
7/14/2022NKELAXS 2X NKE Bull Daily ETF1.1
7/14/2022PFESAXS 2X PFE Bear Daily ETF1.0
7/14/2022PYPSAXS 1.5X PYPL Bear Daily ETF0.9
7/26/2022TSLHInnovator Hedged TSLA Strategy ETF2.3
8/9/2022TSLLDirexion Daily TSLA Bull 1.5X Shares117.9
8/9/2022AAPDDirexion Daily AAPL Bear 1X Shares22.2
8/9/2022TSLSDirexion Daily TSLA Bear 1x Shares21.9
8/9/2022AAPUDirexion Daily AAPL Bull 1.5X Shares6.8
8/9/2022CONLGraniteShares 1.5x Long COIN Daily ETF1.1
8/9/2022TSLIGraniteShares 1x Short TSLA Daily ETF0.8
8/9/2022AAPBGraniteShares 1.75x Long AAPL Daily ETF0.7
8/9/2022TSLGraniteShares 1.25x Long TSLA Daily ETF0.6
9/7/2022AMZUDirexion Daily AMZN Bull 1.5X Shares9.5
9/7/2022AMZDDirexion Daily AMZN Bear 1X Shares8.1
9/7/2022GGLLDirexion Daily GOOGL Bull 1.5X Shares5.5
9/7/2022GGLSDirexion Daily GOOGL Bear 1X Shares4.8
9/7/2022MSFDDirexion Daily MSFT Bear 1X Shares4.3
9/7/2022MSFUDirexion Daily MSFT Bull 1.5X Shares3.6
12/13/2022FBLGraniteShares 1.5x Long META Daily ETF-
12/13/2022NVDLGraniteShares 1.5x Long NVDA Daily ETF-
12/13/2022BABXGraniteShares 1.75x Long BABA Daily ETF-

Source: ETF.com, as of 12/13/2022

 

Contact Heather Bell at [email protected]

Heather Bell is a former managing editor of etf.com. She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.