We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Exchange-Traded Funds (ETFs) have seen a rapid progress since their inception. In its initial days, plain vanilla ETFs used to track broad market indices, but these have grown to cover a wide array of investment themes, sectors, and styles over the years.
In this pursuit, one of the latest changes in the ETF space has been the advent of single-stock ETFs. These funds, as the name suggests, focus on a single stock rather than a bunch.
In the past one year, single-stock ETFs made up 7% of total new U.S .ETF listings, per a J.P. Morgan report. Since July 2022, about 30 single stock ETFs have been listed in the United States, which have gathered about $1.1 billion in total assets.
Inside Single-Stock ETFs
Single-Stock ETFs are fundamentally a new type of funds that look to track the performance of a single company’s stock. While traditional ETFs follow a basket of multiple stocks or other assets to lower concentration risk, Single-Stock ETFs bet on a single entity. This basically allows investors buy shares of an ETF that imitate the performance of an individual company's equity, rather than a diversified portfolio.
Pros of Single-Stock ETF Investing
Investors should note that many times some high-priced stocks normally remain unreachable for smaller investors. Single-stock ETFs can make these stocks accessible to all, as the ETF shares may be priced lower than the underlying stock.
Secondly, they can provide easier access to certain foreign stocks. For example, investors may find it difficult to buy shares of foreign companies due to regulatory complications. However, an ETF based on a single foreign company's stock, if traded on a domestic exchange, can easily be bought, thereby avoiding these issues.
Then, issuers are able to offer inverse/leveraged exposure to a single stock when the stock is packed within an ETF. With this structure, investors get scope to multiply their returns, though with greater risks.
Lastly, when offered in an ETF form, such single-stock product can offer tax efficiency. Like traditional ETFs, Single-Stock ETFs have the potential for tax advantages related to capital gains distributions, depending on jurisdiction and specific circumstances. But that stock itself won’t let you enjoy such benefit.
Cons of Single-Stock ETFs
Despite those benefits, single-stock ETFs also come with its shares of risks that investors must be mindful of.
Concentration Risk: The most apparent risk is the company-specific concertation risks. If the single stock that the ETF holds performs poorly, the entire ETF’s performance will be awful. Unlike, traditional ETFs that, this newbie can’t make up poor performance of one stock with better performance of others.
Liquidity Risk: Single-stock ETFs may be less liquid than the underlying stock, especially if they are newly launched or not widely held. This could result in wider bid-ask spreads and likely snags in buying or selling the ETF at wanted prices.
Tracking Error: Like any ETF, single-stock ETFs may experience tracking error, which is a deviation between the ETF’s performance and the performance of the underlying stock. This could occur due to fees, rebalancing, or other factors.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Guide to Single-Stock ETF Investing
Exchange-Traded Funds (ETFs) have seen a rapid progress since their inception. In its initial days, plain vanilla ETFs used to track broad market indices, but these have grown to cover a wide array of investment themes, sectors, and styles over the years.
In this pursuit, one of the latest changes in the ETF space has been the advent of single-stock ETFs. These funds, as the name suggests, focus on a single stock rather than a bunch.
In the past one year, single-stock ETFs made up 7% of total new U.S .ETF listings, per a J.P. Morgan report. Since July 2022, about 30 single stock ETFs have been listed in the United States, which have gathered about $1.1 billion in total assets.
Inside Single-Stock ETFs
Single-Stock ETFs are fundamentally a new type of funds that look to track the performance of a single company’s stock. While traditional ETFs follow a basket of multiple stocks or other assets to lower concentration risk, Single-Stock ETFs bet on a single entity. This basically allows investors buy shares of an ETF that imitate the performance of an individual company's equity, rather than a diversified portfolio.
Pros of Single-Stock ETF Investing
Investors should note that many times some high-priced stocks normally remain unreachable for smaller investors. Single-stock ETFs can make these stocks accessible to all, as the ETF shares may be priced lower than the underlying stock.
Secondly, they can provide easier access to certain foreign stocks. For example, investors may find it difficult to buy shares of foreign companies due to regulatory complications. However, an ETF based on a single foreign company's stock, if traded on a domestic exchange, can easily be bought, thereby avoiding these issues.
Then, issuers are able to offer inverse/leveraged exposure to a single stock when the stock is packed within an ETF. With this structure, investors get scope to multiply their returns, though with greater risks.
Lastly, when offered in an ETF form, such single-stock product can offer tax efficiency. Like traditional ETFs, Single-Stock ETFs have the potential for tax advantages related to capital gains distributions, depending on jurisdiction and specific circumstances. But that stock itself won’t let you enjoy such benefit.
Cons of Single-Stock ETFs
Despite those benefits, single-stock ETFs also come with its shares of risks that investors must be mindful of.
ETFs in Focus
Below we highlight a few single-stock ETFs.
On Tesla (TSLA - Free Report) ):
Direxion Daily TSLA Bull 1.5X Shares ETF (TSLL - Free Report) – $777.6 million AUM
On Nvidia (NVDA - Free Report) ):
Graniteshares NVDA 1.5X Daily ETF NVDL – $86.6 million
AXS 1.25x NVDA Bear Daily ETF (NVDS - Free Report) – $101.5 million
On Microsoft (MSFT - Free Report) ):
Direxion Daily MSFT Bull 1.5X Shares MSFU – $29.9 million
Direxion Daily MSFT Bear 1X Shares (MSFD - Free Report) – $8.6 million
On Apple (AAPL - Free Report) ):
Direxion Daily AAPL Bull 1.5X Shares (AAPU - Free Report) – $29.0 million
Direxion Daily AAPL Bear 1X Shares (AAPD - Free Report) – $26.9 million
On Amazon (AMZN - Free Report) ):
Direxion Daily AMZN Bull 1.5X Shares (AMZU - Free Report) – $32.9 million
Direxion Daily AMZN Bear 1X Shares (AMZD - Free Report) – $5.5 million
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)