ETF space to become more bustling as new single-stock era beckons

US investors now have a new set of single-stock ETFs, which are quite different from most ETFs (Exchange Traded Fund). As the market grows more volatile, these single-stock ETFs bring in more risks for investors.

These are not meant for long-term goals, warn market experts.

So, the already crowded space of ETFs will now become more active with these single-stock ETFs, launched last week amid a flurry of regulatory warnings about the potential risks.

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New single-stock ETFs gain SEC nod

The new set of ETFs are going to be managed by AXS Investments and they are the first to be approved by the Securities and Exchange Commission (SEC). In Europe, similar products already exist.

With these new funds, investors will be able to short stocks like Tesla (Nasdaq: TSLA). They can also make a leveraged protracted long bet on stocks like Nike (NYSE: NKY) or Pfizer (NYSE: PFE), through a regular brokerage account.

These products are meant for active traders and passive investors should stay away because leverage is grossly misunderstood and is not for risk-averse traders. Leveraged products have the chance of causing substantial losses to investors.

The new leveraged single-stock ETFs launched by AXS Investments will focus on companies that include:

• Tesla Inc. (TSLA),
• Nvidia Inc. (NVDA)
• PayPal Inc. (PYPL)
• Nike Inc. (NKE)
• Pfizer (PFE)

Even though it has given the green light to the new single-stock ETFs, the Securities and Exchange Commission itself is divided on their benefits.

It is true that leveraged single-stock ETFs bring in new opportunities for investors in a volatile market, but they are also fraught with greater risk.

Bottom line:

They also bring in a lot of risk for novice traders. The tickers for the single-stock funds are very identical to the tickers for the stocks themselves. This can be great confusion in the market where people may end up buying inadvertently.