Bearish Tesla Bet Is Among First Single-Stock ETFs to Hit US
2022.07.14 15:25
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(Bloomberg) — America’s first leveraged single-stock ETFs will debut Thursday, launching into a miserable year for US equities and accompanied by a barrage of regulator warnings over their potential risks.
AXS Investments is launching eight exchange-traded funds that allow investors to make inverse or leveraged bets on single companies such as Tesla (NASDAQ:TSLA), Nvidia (NASDAQ:NVDA and PayPal Holdings Inc (NASDAQ:PYPL). These products are big business in Europe, but AXS’s will be the first of their kind in the world’s largest market.
The arrival of this new breed of ETF has prompted criticism from the Securities and Exchange Commission. Although the Wall Street watchdog has not blocked the funds, several officials have warned of the threat they pose to investors and markets.
Chair Gary Gensler said the products “present particular risk” in a press call this week. Commissioner Caroline Crenshaw cautioned investment advisers about recommending these products to retail traders, and the SEC’s director for the Office of Investor Education and Advocacy, Lori Schock, warned investors of the volatility of these ETFs.
Greg Bassuk, chief executive officer of AXS, said the firm will focus on educating investors and that the funds are meant for “sophisticated, active traders.”
“These are not products for buy-and-hold investors,” he said in an interview. “They’re more specific for active traders who have the ability to monitor their portfolios every day and who have the kind of the skill and education to invest in them.”
Race to Market
Several issuers have been racing to be the first to provide single-stock funds in the US, and dozens of other vehicles are in the works. They will be the latest addition to the burgeoning $6.2 trillion ETF ecosystem, which boasts products delivering everything from thematic investing to quant-like strategies.
“Our team has been very focused on opening up new points of access for US investors,” Bassuk at AXS said. “For us, this was just the next evolution, the next iteration for ETFs.”
AXS’s push to get the funds to market is part of an aggressive approach they’ve used to try to be early movers in niche categories. The firm is acquiring Tuttle Capital’s six funds, among them the Tuttle Capital Short Innovation ETF (NASDAQ:SARK), which bets against Cathie Wood’s flagship strategy. It also recently closed the acquisition of the AXS Change Finance ESG ETF (NYSE:CHGX) from Change Finance.
Read more: Anti-ARK Fund Takeover Just a Start as AXS Comes for Niche ETFs
In its initial February filing, AXS proposed single-stock funds that would offer double the daily gain or inverse return on companies. But following the formal application process, some of its funds will now offer less than two-times leverage. For example, the TSLA Bear Daily ETF (LON:TSLQ) will offer the daily inverse return of Tesla, and the 1.5X PYPL Bull Daily ETF (PYPT) will offer 1.5 times the daily performance of PayPal.
“None of our leverage amounts are in response to SEC concerns,” Bassuk said. The idea is to “launch across a couple different leverage levels, a range of sectors.”
Each ETF carries an expense ratio of 1.15%, according to filings.
AXS filed for 18 funds in total, but is launching only eight immediately. For the initial slate, Bassuk said the firm looked at which funds they thought would have high initial demand.
Direxion and GraniteShare are among issuers also looking to list single-stock ETFs. Toroso Investments filed on Wednesday for a slate of funds that would use options to provide exposure to single stocks while generating income at the same time. Those funds would be sub-advised by ZEGA Financial.
(Updates with fund names and tickers, expense ratio detail.)
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