Exchange-traded funds, or ETFs, have long been recommended for portfolio growth, particularly for retirement savings through exposure to broad indexes. A new category known as single-stock ETFs, however, presents a stark contrast to this conventional approach.
These products focus on a single company, such as Tesla or Nvidia, and often employ leverage to amplify daily price movements. If a stock rises 2% in a day, a corresponding single-stock ETF might gain 4%. Conversely, losses can double just as quickly.
AXS Investments received the first regulatory approval for single-stock ETFs from the U.S. Securities and Exchange Commission in 2022. Since then, hundreds have launched, with over 200 introduced in 2025 alone. They are now accessible in standard brokerage accounts, trading like ordinary shares without requiring special privileges for margin or complex instruments.
Mo Sparks from the leveraged ETF firm Direxion noted to Barron's that activity for these ETFs is most "elevated" during earnings seasons, when stock volatility increases after company reports. The primary appeal is the potential for higher short-term gains when an investor correctly anticipates a stock's move.
Some single-stock ETFs are structured as "inverse" products, allowing investors to profit when a company's stock declines. This provides a way to bet against a stock without establishing a traditional short position.
Analysts emphasize these are speculative instruments not designed for long-term holding. "These are speculative instruments that are not intended to be held for long periods of time," Zachary Evens, a manager research analyst at Morningstar, told CNBC. "In aggregate, the performance of these is not positive, and likely for many investors, their experience is not positive as well."
The funds typically recalculate their leverage daily, a process known as "daily resets." This means returns reflect single-day performance rather than cumulative gains over time. Over the long term, this daily rebalancing can lead to "volatility drag," where the ETF loses value relative to the underlying stock.
Preliminary research from the American Association of Individual Investors indicates single-stock ETFs generally outperform their underlying stock for only one day. Given their concentration in one investment and use of high-risk strategies, they are considered inappropriate for retirement accounts like IRAs and 401(k)s.
Experts suggest only those engaged in day trading should consider single-stock ETFs, and even then, must understand the risks. Using automatic sell orders, or stop-losses, is one recommended precaution to exit unfavorable trades quickly. For investors not focused on day trading, diversified ETFs remain the advised choice for steady wealth building.