Still, some investment professionals have expressed concern about the risk that some single-stock E.T.F.s pose to individual investors, starting with Caroline Crenshaw, a commissioner of the Securities and Exchange Commission. “I worry that these single-stock E.T.F.s pose yet another, perhaps greater, risk for investors and the markets,” Ms. Crenshaw said.
Concern about the riskiness of the new E.T.F.s ratcheted up after three fund managers filed plans in August to offer single-stock E.T.F.s of foreign stocks that don’t trade on U.S. exchanges and aren’t subject to U.S. accounting and financial disclosure rules. The managers, Kelly Intelligence, Roundhill Investments and Tema Global, sought to create 130 funds of firms including Saudi Aramco, Samsung and Volkswagen. But all were withdrawn by the end of September. Analysts suggested that the S.E.C. might have privately indicated that it wouldn’t approve the funds.
“This is pretty telling that the E.T.F. industry has come full circle,” said Sean Allocca, editor in chief of ETF.com. “The irony is that when E.T.F.s came out, the benefit was that you could track these large indexes and it was pretty cheap.”
The most popular of the AXS funds is AXS TSLA Bear Daily E.T.F. (TSLQ), an inverse fund that bets against shares of Tesla. The fund started trading in mid-July at $51.63 and has ranged from $36.25 to $46.09, attracting $59.4 million in assets with a net expense ratio of 1.15 percent. Three other AXS funds list assets of $800,000 or less. By comparison, the iShares Expanded Tech Sector E.T.F., with broad exposure to the technology sector, has assets of $2.8 billion with a net expense ratio of 0.40 percent.
One new family of single-entity E.T.F.s that could hold wider appeal comes from the boutique advisory firm F/m Investments and is intended to track the current rates on the 10-year U.S. Treasury bond, the two-year Treasury bond and the three-month Treasury bill.
“Bond trading is messy no matter how well you try to do it, and we do it every day,” said Alexander Morris, president and chief investment officer of F/m. “You could do all of this today with options and derivatives, but you need to have pros who do this every day. We used the beauty of the E.T.F. and just did the simplest thing possible.”
Issued in August, the three Treasury funds have attracted $164 million in assets with an expense ratio of 0.15 percent. F/m plans to issue seven more funds for Treasuries with durations of six months to 30 years.
