Tesla to Nvidia: How Single-Stock ETFs Are Changing the Game

Well, single stock ETFs have exploded onto the investing scene, offering traders a high octane way to gain leveraged or inverse exposure to individual companies like Tesla and Nvidia and Apple along with many others.

In just a few short years, these niche products have grown rapidly in popularity, fueling fueled by both excitement and debate uh by allowing investors to amplify their bets on single names without having to use a margin account.

But with greater potential reward comes greater potential risk.

So, let's dive into what's driving the surge in single stock ETFs.

We've got Dave Krenis with ETF Portfolio Management joining us.

Dave, great to see you.

Ronnie D, nice to see you, my friend.

So, let's dive into what's behind the single stock ETFs and what investors and traders need to know.

Let's begin with what are leveraged bull and inverse single stock ETFs?

High level.

Well, levered and inverse single stock ETFs are basically new power tools that give experienced investors the ability to express their market views more dynamically.

They basically use derivatives to simulate two to three times levered exposure actually with individual stocks just two times levered exposure to the long side and one to two times short on the inverse.

Most importantly they can be very surprising at times with huge upside and downside risk.

So investors should be extremely careful whenever using leverage especially with position concentration.

So let's examine a case study example of the Netflix pair of ETFs from direction.

You got NFXL and then NFXS.

So what type of trader or investor might each of these ETFs appeal to?

So Netflix is a leading innovative company and NFXL is two times long exposure to Netflix while NFXS is one time short.

Now, these funds haven't been around long, and the nature of the volatility can significantly impact the return.

You can see on this 9-month chart, Netflix was up 77% and the two times version gave you more than double, while the one-time short fund only fell by 47% and not the 77% you could have expected.

So this is all part of the performance deviation you could get depending on the nature of the volatility during the time frame.

During this time period the underlying asset Netflix was mostly positive and upward.

Yeah.

Now besides an investor trader who might be let's say bearish on an individual stock uh are there any other use cases for the leveraged inverse stock ETFs?

Well, in addition to tactical investing and speculation, we believe there is a case for using these funds for tax efficiency and cash management.

Anyone who wants to have a cash reserve invested could use leveraged funds to increase exposure in a Roth IRA.

So, leveraged funds present an extremely wide range of uses for a wide range of investors, and that's why they've attracted so much in assets.

Still these tools are ex are really for experienced investors.

Over the past nine months looking at strategy MSTR and the two times version MSTU, you can see the leverage worked extremely well during the strong up period and quite badly in the down and sideways periods.

So investors should be extremely careful using leverage and even more so with concentrated positions.

And one other example to highlight is Coinbase, which I know you love, Ron.

This chart shows over the past two and a half years, the two times version con l C O N L performed extremely well during the strong up periods and not so well during down and sideways periods.

This means you only want to use levered long single stock instruments in strongly trending positive markets for the underlying stock.

Now I know you've also Dave been a proponent of the NASDAQ 100 and crypto ETFs linked to Bitcoin for quite some time and besides that do you think single stock ETFs will will eventually play a bigger role in portfolio management?

How do you see it?

You know, while leveraged single stock ETFs are gamechangers, the leveraged index ETFs and Bitcoin are much bigger innovations, still you can think of leveraged single stock funds as the cherry on top of a dynamic new investor toolbox Sunday.

Together, these instruments enable investors to target much higher returns and sometimes with much higher risk.

In fact, two times strategy MSTU actually delivered more than 900% over 9 weeks last year and then quickly fell by 50% over 4 days.

And recently, as you know, we have been allocating to Robin Hood via Hod for unlevered exposure and the two times version RON.

And over the past three months, the two times Robin Hood RBN actually gained 137%.

So this is a new era in ETF investing.

So you have been using the single stock ETFs inside portfolio management.

Of course, selectively you have been using these products.

We have we've used uh Nvidia in the past, Micro Strategy, as well as Robin Hood and even Coinbase at times.

Wow, that's that's very very revealing and it just like you said speaks to the innovation that's happening in the ETF marketplace and then also adapting uh some of these uh power tools into your overall strategy for hopefully a happy end result.

Dave Crrenis, great job.

Always wonderful to see you.

Thank you for taking the time to be with us today.

Thank you, Ron.

Happy summer, everyone.

Stay cool, people.

That was Dave Crrenis with ETF Portfolio Management.

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I'm Ronda Legend with ETF Guide TV.

We'll see you on the next episode.