Wall Street Set for New ETF Gold Rush as Single-Stock Era Begins
Comment of the Day

July 18 2022

Commentary by Eoin Treacy

Wall Street Set for New ETF Gold Rush as Single-Stock Era Begins

This article from Bloomberg may be of interest to subscribers. Here is a section:

A new ETF-for-everything era may have just begun on Wall Street, swelling an industry that already boasts nearly 3,000 products and $6.2 trillion in assets.

The booming world of exchange-traded funds is about to get even more crowded after the very first single-equity ETFs launched Thursday -- despite a torrent of regulatory warnings over their risks while retail investors are still reeling from the crash in speculative trades from crypto to meme stocks.

The eight products from AXS Investments look like the start of a coming invasion of amped-up strategies that will seek to enhance or invert the performance of volatile companies, including Tesla Inc., Nvidia Corp. and PayPal Holdings Inc.

Another proposed lineup from Toroso Investments offers to layer on a bullish options strategy in order to boost returns. All told, at least 85 more such ETFs are currently planned, according to filings tracked by Bloomberg, covering some 37 companies.

That’s just the start. With a never-ending fee war taking costs on index-tracking ETFs to rock-bottom levels, the arrival of single-stock products opens up a lucrative avenue for issuers, with leveraged or inverse trades tracking major companies up for grabs. 

All told, the Securities and Exchange Commission may have inadvertently put new investing tools in the hands of day traders at a dangerous time with recession risk sparking bear markets. 

Eoin Treacy's view

The rational investor is going to question the wisdom of setting up single stock ETFs. Afterall can’t you simply buy the share? The reason for setting up single stock ETFs for shares like Nvidia and Tesla is because their options are expensive. Options sell in minimum sizes of 10 contracts for retail traders. If the underlying has a lower nominal value, the options will be cheaper to buy for smaller investors.

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