Investment Firm Seeks to List Double-Leveraged ETFs Based on Single Stocks
Commentary by Nick Allen
In a registration filing with the SEC, an investment firm is seeking approval of a series of double-leveraged bullish and bearish exchange-traded funds ("ETFs") that each track the performance of a single U.S.-listed equity security.
According to the filing, the funds intend to provide daily returns that are two times the daily return (or two times the inverse daily return) of a single underlying U.S. equity security. The proposed underlying securities include Tesla, Inc. (TSLA), NVIDIA Corporation (NVDA), ConocoPhillips Company (COP), Boeing Company (BA), PayPal Holdings, Inc. (PYPL), Wells Fargo & Company (WFC), Pfizer Inc. (PFE), salesforce.com, Inc. (CRM) and Nike Inc. (NKE).
The funds' investment adviser, AXS Investments, LLC ("AXS"), would seek to achieve these investment objectives by entering into one or more swap agreements with major global financial institutions and may invest between 40% and 80% of a fund's portfolio in collateral investments (e.g., U.S. government securities and money market funds).
AXS is seeking SEC approval to list these ETFs on an exchange to be determined.
Commentary
Though 2x and 3x daily and daily inverse leveraged ETFs are common, these would be the first U.S.-listed ETFs to track a single equity security rather than a more broad-based market or market segment. If the popularity of existing daily leveraged ETFs among retail investors and continued growth of retail options activity are any indication, then demand for products like the funds could be high. Nevertheless, despite daily leveraged ETFs' popularity, the SEC and FINRA have raised concerns about such products, and the concentration risk implicit in these funds and generally higher volatility of single stocks (as compared to broader benchmarks) could magnify those concerns.