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Single-Stock ETF Market Swells With Firehose of New Products
2025 is shaping up to be the year of the single-stock ETF.
While the number of leveraged single-stock ETFs in the US more than doubled in the first four months of the year, things may just be getting started. In the past few weeks alone, dozens of such products have been filed for registration with the Securities and Exchange Commission. Those include 10 ETFs from Themes, 14 from Defiance, and 12 from LevMax. To put those numbers in perspective, there were a total of 42 leveraged single-stock ETFs on the market at the beginning of the year, according to Morningstar Direct data. The first such products appeared after the SEC approved the concept in 2022.
'Retail investors have long desired to have institutional trading options for a long period of time, but they've been hamstrung, because options can be difficult, shorting can be difficult, and there are all sorts of risks that can be associated with those things,' said Paul Marino, chief revenue officer of Themes ETFs.
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The most aggressive of the proposed products are the triple-leveraged LevMax ETFs. Those funds have 'a predetermined upside return cap' but also seek to limit downside by 'matching any negative performance of the underlying security on a one-to-one basis,' the prospectuses state.
Themes, whose US ETF assets just surpassed $100 million, would seek 'accelerated returns' with caps on the potential upside on five ETFs using at-the-money calls with a one-month expiration. The upside cap would come from selling two call options.
'This is just an innovative way to use period-certain leveraged exposure to some of the most popular names,' Marino said. 'It's a way to offer accelerated returns without taking accelerated risk.'
Other ETFs in the works take different approaches:
The unleveraged YieldMax Option Income ETFs would seek to provide current income, having indirect exposure to share prices and a limit on potential gains. The 12 proposed ETFs would focus on individual stocks including those of GameStop, Uber and Spotify.
The 14 Defiance Leveraged Long + Income ETFs would use leverage of 150% to 200% on stocks including Apple, Meta, and Tesla. They would generate income by writing credit call spreads, according to fund documents.
Rolling the Dice: The rise in leveraged ETFs 'is super-connected with this surge in sports betting we've seen,' said Victor Haghani, founder of Elm Wealth. While there is a potential use case for young investors with low financial capital having some leverage via an S&P 500 ETF, even that instance would be difficult to justify, he said. With $100 invested in a 2X ETF, for example, 'the cost of leverage is always going to be much higher than Treasury bills,' he said. 'That second $100 (of exposure via leverage) isn't really giving you anything.'
There is no case for leveraged single-stock ETFs, he said. Even if a stock were to maintain its price over time, any volatility would lead to leveraged ETFs rebalancing often and creating a drag on net returns, not to mention fees, he said. 'What you get is not what most people think they're going to get.'
This post first appeared on The Daily Upside. To receive exclusive news and analysis of the rapidly evolving ETF landscape, built for advisors and capital allocators, subscribe to our free ETF Upside newsletter.
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