Tracking Single-Stock ETFs’ Early Performance

It’s been a little over three weeks since AXS Investments launched the first batch of single-stock leveraged and inverse ETFs on the U.S. market.  

The debut of the novel products was not without controversy. Shortly before they began trading, several SEC officials released public statements warning of their risks. Days later, the launch went off without a hitch, and it looks like these ETFs will be with us for the foreseeable future—as long as there is demand from investors.  

U.S. investors have long been familiar with leveraged and inverse ETFs on indexes and commodities; those have existed for years, and collectively hold billions of dollars of assets under management.  

Applying the same types of strategies onto individual stocks is something that is new for the U.S. market, which raised the questions about demand for them. Since these products are so new, would they shoot out of the gate, or would they take a long time to pick up traction? 

On the one hand, the eight initial single-stock ETFs that launched in July could be considered shiny new toys that traders are eager to play with. On the other hand, they could be seen as superfluous funds with plenty of index-based leveraged and inverse ETFs already available, like the very popular ProShares UltraPro QQQ (TQQQ), which has nearly $13 billion in assets.  

An Early Assessment  

Now that they’ve been on the market for a few weeks, we can make an early assessment about the popularity of these funds. The verdict is these funds certainly haven’t shot out of the gate, though they do have some potential, depending on the specific stock targeted.  

Far and away the most successful of the single-stock ETFs so far is the AXS TSLA Bear Daily ETF (TSLQ), which has picked up $35.2 million in assets so far. That’s a decent amount of assets, especially given that prices for the ETF have dropped 21.5% since their debut, amid a rally in shares of Tesla. 

None of the other single-stock ETFs has gathered more than $2.3 million in assets, regardless of performance. The AXS 1.5X PYPL Bull Daily ETF (PYPT) is the top performer among the bunch, with a 42.9% gain since July 14, but the fund only has $2.1 million in AUM. 

PayPal shares surged 11% on Wednesday after the company reported that revenue growth would accelerate later this year. The fintech giant also confirmed activist investor Elliott Management’s $2 billion stake in the company, making it one of their largest shareholders.  

Still, CEO Dan Schulman noted the company has “plenty” of headwinds. “We can be more productive,” he said. 

Average daily trading volume is another way to measure the popularity of these funds, and it’s telling a similar story. An average of 1.2 million shares of TSLQ are exchanging hands per day, but volume for the other ETFs is paltry, according to data from Bloomberg Intelligence. 

Bloomberg analyst Eric Balchunas noted that TSLQ accounts for 97% of the volume in the nascent single-stock ETF category. He sees this as evidence that “trading tools linked to big personalities and/or controversy have highest odds of success.” 

Popularity ≠ Performance  

Tesla is, of course, a much more exciting and volatile stock than Pfizer or Nike, so it’s easy to see why short-term traders would gravitate toward an inverse ETF tied to that name.  

But the strong performance in the AXS 2X NKE Bull Daily ETF (NKEL), up 24.1% since July14, indicates that a leveraged ETF tied to a relatively “sleepy” company like Nike can perform just as well, if not better, than one tied to an “exciting” company like Tesla. 

Indeed, for longer holding periods, the math behind daily rebalancing favors less volatile assets. But the irony is that even though leveraged and inverse ETFs on more boring stocks might perform better long term, they probably won’t attract the attention of the traders who would be interested in these risky products to begin with. 

At least that’s the conclusion based on this very early data on assets and trading volume for single-stock ETFs. The verdict might change as time goes on and even more of these products come to market.  

Dozens more single-stock leveraged and inverse ETFs are in the pipeline, ready to launch in the coming months. Those include funds tied to fast-moving, popular tech stocks like Apple Inc., Microsoft Corp., Amazon.com Inc., Alphabet Inc., Netflix Inc. and Meta Platforms Inc., as well as slower-moving, old economy stocks like Wells Fargo & Co., The Boeing Co. and ConocoPhillips Co. 

Time will tell which type of single-stock ETFs resonate with traders and investors. 

Follow Sumit Roy on Twitter @sumitroy2