What Is a Single-Stock ETF, and Why Are Advisors Wary?

These days, exchange-traded funds, or ETFs, can do much more than passively track a basket of stocks. For example, recently introduced single-stock ETFs allow traders to place big bets on individual stocks.

The first single-stock ETFs hit U.S. markets in July 2022 — but since then, several ETF issuers have launched new ones. Here’s a look at how they work, why they’re catching on and what advisors have to say about them.

What are single-stock ETFs?

Single-stock ETFs are leveraged ETFs whose performance is related to the daily return of an individual stock. They come in a few different varieties:

Leveraged long single-stock ETFs target a multiple of their stock. For example, the AXS 2X NKE Bull Daily ETF (NKEL) aims for two times the daily return of Nike stock. So if Nike rises 2% on a given day, the ETF is supposed to rise 4%.

Short single-stock ETFs target the inverse of their stock. The Direxion Daily TSLA Bear 1X Shares ETF (TSLS), a short single-stock ETF, tracks the opposite of…

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This article was written by Sam Taube and originally published on www.nerdwallet.com