Single-stock ETFs: Everything you need to know

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You may be familiar with traditional exchange-traded funds, or ETFs, that are similar to mutual funds, as they are a basket of securities offering an investor diversification, and could offer lower costs and risks.

Now, there’s a shift regarding ETFs that can offer more targeted investing. You can now purchase single-stock ETFs to round out your portfolio.

"Single-stock ETFs are exchange-traded funds that only track a single stock; however, these products differ from investments in individual stocks, as single-stock ETFs use derivatives contracts to provide leveraged and inverse returns," said Tom Lydon, vice chairman of VettaFi.

He explained that single-stock ETFs can offer 1.25x, 1.5x, or -1x single-day exposure to the underlying individual stock.

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Trader Justin Flinn, left, works on the floor of the New York Stock Exchange, Wednesday, March 16, 2022. (AP Photo/Richard Drew / AP Newsroom)

"It is important to note that these leveraged and inverse single-stock ETFs only reflect single-day moves, so long-term investors may find that the actual performance goes beyond or falls short of their intended leverage or inverse, depending on market volatility," Lydon said.

According to Lydon, AXS Investments launched the first single-stock leveraged/inverse ETFs on July 14, debuting eight strategies on the Nasdaq. Innovator ETFs, GraniteShares and Direxion jumped into the arena soon after with their own single-stock ETFs. F/m Investments was the first issuer to market U.S.-listed single-bond ETFs that track U.S. Treasuries, he said.

Do keep in mind, Lydon cautioned, that since single-stock ETFs are not intended to be used as buy-and-hold, long-term investments, these strategies are likely best excluded from a core investment portfolio.

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"These products are best fit for aggressive or sophisticated traders who are monitoring the individual stocks and intend to use these leveraged/inverse single-stock ETF tools to better capitalize on specific short-term movement," he added.

Furthermore, as noted, short and leveraged single-stock ETFs may provide short or leveraged exposure to individual companies.

"ETFs typically provide exposure to indexes such as the S&P 500, however, the industry has evolved over the years, and you now have plenty of ETFs in the market providing exposure to single underlying assets, such as gold, oil or bitcoin futures," explained Will Rhind, founder and CEO of GraniteShares. 

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Short and leveraged single-stock ETFs, said Rhind, are just a natural extension of this trend toward more precise or concentrated exposures.

"In the case of a leveraged long ETF, such as the GraniteShares 1.25X Long TSLA Daily ETF (TSL), the fund seeks to provide 1.25 times the daily return of the common stock of Tesla. In the case of a short ETF such as the GraniteShares 1X Short TSLA Daily ETF (TSLI), the fund seeks to provide -1 times the daily return of Tesla," Rhind said.

TickerSecurityLastChangeChange %
TSLGRANITESHARES ETF TRUST 1.25X LONG TESLA DAILY ETF23.16-0.38-1.60%
TSLIGRANITESHARES ETF TRUST 1X SHORT TSLA DAILY ETF26.12+0.53+2.07%

 

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