Leveraged Tesla, Coinbase Among New Single-Stock ETFs
Posted On August 9, 2022
(Bloomberg) — Tesla Inc. and Coinbase Global Inc. fans are about to get their first ETFs that amplify bets on the notoriously volatile companies, among a slew single-stock products hitting the market Tuesday.
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Direxion and GraniteShares are each launching four exchange-traded funds that allow investors to make leveraged or inverse bets on the daily performance of individual companies. They’re both starting leveraged- and inverse-Tesla funds as well as leveraged Apple Inc. products. GraniteShares is also introducing a leveraged Coinbase ETF, while Direxion is debuting an inverse Apple fund.
The first single-stock products in the US launched last month even as regulators warned of their risks to investors and markets. Many of those ETFs from AXS Investments track retail favorites like Tesla, Nvidia Corp. and PayPal Holdings Inc. — stocks that grew in popularity as small-time traders piled into the market during the pandemic but have since delivered steep losses during the downturn.
While AXS is a small issuer, the two firms launching Tuesday have made their names in complex products. Direxion is one of the largest providers of leveraged ETFs in the US, and GraniteShares offers many single-stock products in Europe.
With dozens of single-stock ETFs now filed in the US with the Securities and Exchange Commission, the two issuers are up against several competitors rushing into the space, lured by the opportunity to charge higher fees. Both, though, said their history of offering complex products will be a selling point to investors.
“Direxion has a large following of tactical traders, both retail and institutional,” David Mazza, head of product at the firm, said in an interview.
Will Rhind, chief executive officer at GraniteShares, noted that “a lot of investors know us already in this space.”
The two firms’ inverse Tesla funds in particular will face off against AXS’s TSLA Bear Daily ETF (TSLQ) that launched last month. GraniteShares’ new products each carry a 1.15% expense ratio, the same as AXS’s products. Direxion’s ETFs each carry a management fee of 0.95%, according to Mazza.
In addition to the funds they’re introducing Tuesday, Direxion and GraniteShares have a combined total of 36 other funds on their drawing boards. Direxion chose to focus on Tesla and Apple in its first wave of launches because the companies have some of the most “controversial viewpoints” held by the trading community, meaning there are many people wanting to make bets on both sides of the stocks, Mazza said.
The trading activity on AXS’s ETFs is evidence of the popularity of Tesla-linked products. Out of the eight single-stock ETFs that AXS has launched, its inverse Tesla fund has received the most inflows and trading volume.
GraniteShares’ initial wave of launches includes its leveraged Coinbase ETF since the product would be the first in the US that comes closest to leveraged crypto exposure, Rhind said. The product is debuting as Coinbase is set to report earnings after the market close Tuesday.
Similar to AXS, the two issuers both initially planned for bull funds that would offer two times the daily return on single stocks, but have lowered the leverage amount for some of their ETFs while they were under review with the SEC. They made the changes to comply with rules that are meant to limit the amount of derivatives-related risk within a fund.
While the SEC has not blocked single-stock ETFs from listing, officials have issued a barrage of warnings about the products. Commissioner Caroline Crenshaw has cautioned investment advisors against recommending the ETFs to retail traders.
Mazza said Direxion has been educating retail traders about its complex products.
“We really emphasize through our educational efforts that these products are not to be used as long-term investments. In fact, quite the opposite — these funds are daily trading tools,” he said.
Rhind at GraniteShares said a single-stock ETF is not for every investor.
“It’s a product for people that understand the risks, understand how leverage works, understand how daily rebalancing works and people that are able to monitor their portfolios actively,” he said.
(Updates with Coinbase due to report earnings in 11th paragraph. An earlier version corrected the ticker of the inverse Apple ETF in table.)