Serious risk-averse investors now have several new “funds” they can buy into. The difference is that Unlike traditional ETFs, which are tied to the stocks of several companies, the latest exchange-traded funds actually give traders access to just one stock.
Last month, an investment firm called AXS launched a series of single-stock ETFs for several popular US companies. AXS gives investors the option to go long (ie the stock will rise) or short (the stock will fall) PayPal (PYPL), Pfizer (PFE), and Nike (NKE). AXS also only offers short ETFs for Tesla (TSLA) and Nvidia (NVDA).
Since then, two other firms have launched their own leveraged ETFs in the United States. GraniteShares, which has been trading leveraged ETFs in the UK and Europe for the past few years, now offers ETFs long Apple (AAPL) and Coinbase, as well as long or short Tesla. Direxion has long and short positions in Apple (AAPL) and Tesla.
These investments are inherently risky, and not just because they are tied to a single stock. The funds use what’s called leverage — investments in complex securities called derivatives — to raise rates.
ETFs are essentially designed to rise or fall even more than the underlying stocks they track. But it cuts both ways. When you’re wrong, you’re really wrong. Look, for example, at how AXS’s short Nike ETF has performed over the past month, plummeting 25% while Nike common stock is up about 12%.
To be fair, fund companies warn that these ETFs are for short-term traders, not long-term investors. They are designed to be held for days—or even hours—as a hedge against other positions.
In its press release, Direxion says the funds are “designed for sophisticated investors” and “should not be viewed as buy-and-hold investments, but rather as trading tools for traders with a high risk tolerance.” Direxion added that “these ETFs track the price of a single stock rather than an index, eliminating the benefits of diversification.”
And for what it’s worth, the only reason these ETFs are traded in the first place is because the Securities and Exchange Commission has approved them. But not all of the agency’s regulators are on board, citing concerns about a lack of diversification and increased leverage.
Still, in an industry where imitation is the sincerest form of flattery, there are likely to be more ETFs like this. For example, Direxion filed with the SEC to register bullish and bearish ETFs for Netflix ( NFLX ), Google owner Alphabet ( GOOGL ), Amazon ( AMZN ), and Facebook parent Meta Platforms.
GraniteShares has filed for several long leveraged ETFs, including blue chips such as Microsoft ( MSFT ), Disney ( DIS ) and Ford ( F ), as well as much more volatile stocks including Peloton ( PTON ), Moderna ( MRNA ), Uber ( UBER ) and US-listed Chinese companies Nio ( NIO ) and Alibaba ( BABA ).
Another investment firm called Kurv Investment Management has also filed with the Securities and Exchange Commission (SEC) to list long and short leveraged ETFs that focus on financial and commodity stocks rather than big tech.
Kurv has filed to list long and short ETFs for JPMorgan Chase ( JPM ), Bank of America ( BAC ), Goldman Sachs ( GS ), Morgan Stanley ( MS ), ExxonMobil ( XOM ), and metals companies Newmont ( NEM ) and Freeport-McMoRan (FCX).
So it looks like investors will soon be able to make even more risky long and short bets on many companies outside the FAANG universe, throwing caution to the wind.