Single stock L&I come to the US
AXS Investments, a New York based asset manager, is bringing single stock leveraged and inverse ETFs to the United States.
The funds use swaps to provide geared or inverse exposure to household name stocks like Nike, PayPal, Tesla. They were recently given a reluctant greenlight from the SEC. The SEC backed up its greenlight with a series of public warning statements, urging retail investors to know the risks of leveraged and inverse ETFs.
The funds have a complex fee structure, but the stated gross fee for all of them is roughly 1.5%. temporary fee waivers lower this to 1.15% until June next year.
Bernie’s commentary – Europe comes to America
My understanding of leveraged and inverse ETFs in the US is that most of Wall St dislikes them. This is reflected in the campaign that the biggest asset managers – Vanguard, BlackRock, Charles Schwab, State Street, etc. – all put together two years ago calling on exchanges to ban them from being called “ETFs”. Regulators don’t like them either.
These ETFs have been launched alongside a media campaign from the SEC warning against them, which is remarkable in itself. Reading this report on ETF.com I get the impression that the SEC was forced into letting these investments fly thanks to Donald Trump’s so called “ETF Rule”.
Still, what are the positives that can be said for them? Inverse ETFs I suppose are always better than outright short selling. The statistics for short selling are all whacked. You can theoretically lose infinite money but only gain 100%. Whereas one of the quirks of daily inverse ETFs is that you can gain more than 100% while only losing 100% -- a much better skew.
I guess another positive is that the leverage ratio has been tapped out at 2x. In Europe, GraniteShares ones are allowed to operate at a gnarly 3x leverage--which is all good fun so long as you're buying and selling at the right time. But as we all know, its very hard to be right twice.