Investors have a new way to make bullish and bearish bets on large-cap stocks.
AXS Investments launched eight of 18 approved leveraged single-stock ETFs this month. The funds seek to increase short-term investment exposure to single stocks.
“They’re designed for active traders, traders looking to make day-to-day tactical trading decisions,” company CEO Greg Bassuk told CNBC’s “ETF Edge” on Monday. “As this market has matured for leveraged ETFs…we are excited to offer access to single-stock ETFs in the US market.”
Bassuk notes that AXS’ new products are based on actively traded stocks, including industry leaders such as Tesla, NVIDIA, PayPal, Nike and Pfizer, among others in its first tranche. Similar funds are already available in European markets, he added.
“His [ETF innovation is] always a balance between offering better tools for investors and doing so within regulatory constraints,” Bassuk explained.
Dave Nadig, financial futurist at VettaFi, addressed turnover and regulatory issues among single-stock ETF skeptics. It’s also a question that raises eyebrows at the Securities and Exchange Commission.
“My concerns are that people don’t read labels well enough,” he said, explaining how the volatility of these funds can “kill” investors’ returns if the funds are held inappropriately. “They don’t necessarily understand that you can’t hold these things for a week or two.”
Investors may also lose diversification benefits because single-stock ETFs don’t track entire indices, according to the SEC.
“Because leveraged single-stock ETFs in particular amplify the effect of the price movements of the underlying individual stocks, investors holding these funds will experience even greater volatility and risk than investors who hold the underlying action itself.“, the SEC said in a statement this month.
However, Bassuk argues that the new ETFs offer investors another option that can help them profit from daily movements. Additionally, he believes ETFs offer less risk associated with buying on margin.
“Investors buying on margin could potentially lose more than their initial investment, whereas this single-stock ETF, in that regard, is in our view a better mousetrap in that investors cannot lose more than they invest,” Bassuk said.
Bearish bets among the eight live single-stock leveraged ETFs are lower since their July 14 quote date. The biggest laggard was the AXS 1.5X PYPL Bear Daily ETF, down nearly 22%.
Bullish bets show stronger returns. The AXS 1.5X PYPL Bull Daily ETF is up just under 27%.