For those who want consistent growth in their portfolios, exchange-traded funds (ETFs) are a common suggestion.
Since their introduction in the 1990s, ETFs have earned a reputation as a safe and smart choice for retirement savings, especially when they offer exposure to indices like the S&P 500. However, a new category of “single-share ETFs” goes against this traditional image. In many ways, these trendy new trading products are the exact opposite of what an ETF should be.
Unlike ETFs that manage large pools of assets, single-stock ETFs focus on a single company, but that’s not all. To increase volatility, these riskier ETFs often use leverage and advanced products like swaps to double returns (or losses).
Although there are now hundreds of single-stock ETFs available in standard brokerage accounts, potential investors should understand how these funds operate and why they differ from standard ETF offerings.
Single-stock ETFs have only been around since 2022, when AXS Investments first got the green light from the U.S. Securities and Exchange Commission. Since then, more financial firms have added single-stock ETFs to their offerings, with more than 200 being launched in 2025 alone (1).
These single-stock ETFs typically follow big companies like Tesla or Nvidia and offer investors double the exposure to daily stock price movements. So if Tesla goes up 2% on a given day, someone holding its single-stock ETF will see a 4% increase.
That’s good news when the market is moving in a favorable direction, but it also makes it very easy to lose money on bad days.
Although individual stock ETFs offer twice the exposure today, many companies are trying to increase this volatility, with some proposals aiming to offer products with more than five times the exposure (2).
The obvious appeal of single-stock ETFs is the potential for higher returns. When someone believes that a stock is about to go up in the short term, buying individual stock ETFs will make them more money, but that’s only if that investor is right.
This is particularly true during earnings season, when stocks are most volatile after companies release their respective reports. Unsurprisingly, Mo Sparks of leveraged ETF firm Direxion told Barron’s that he sees the most “activity” for individual stock ETFs during this time (3).
Another reason single-stock ETFs are so trendy today is their increasing accessibility. Without single-stock ETFs, traders need special privileges to access margins or exotic financial instruments to take a position. In contrast, individual stock ETFs trade like other stocks in a brokerage account.
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There is also the ability to customize single stock ETFs for different strategies. Some of these products are called “inverse” ETFs, meaning the investor profits when a company declines. This can be useful if someone wants to bet against a company without opening a short position.
While these features are convenient for some short-term scenarios, they go against all principles of long-term investing. First, these products focus on a single investment rather than offering a diversified, lower-risk exposure. Second, single-stock ETFs use high-risk strategies to generate higher returns, putting traders at greater risk of losing their funds.
There is even preliminary research indicating that individual stock ETFs perform worse than their underlying stocks over the long term. The American Association of Individual Investors notes that individual stock ETFs typically outperform the underlying stocks for only one day (4).
Single-stock ETFs are short-term trading vehicles, not long-term investments.
Single-stock ETFs are not only more volatile than diversified funds, but they also have characteristics that limit their long-term growth. For example, the companies that manage these ETFs recalculate their leverage daily using “daily resets,” so their returns reflect the day’s performance rather than cumulative performance over multiple days. Over time, these daily rebalancing efforts could lead to “volatility resistance,” where the ETF loses value relative to the stock (5).
With all of these features, there is no sure way to approach single-stock ETFs as a long-term investor. It may seem like you would get better returns with a double exposure position, but the mechanics of these ETFs only work in the day trader’s favor. This makes single-stock ETFs a big “no-no” for retirement portfolios like IRAs and 401(k)s.
“These (single-share ETFs) are speculative instruments that are not intended to be held for long periods of time,” Zachary Evens, managing research analyst at Morningstar (1), shared with CNBC. “Overall, their performance is not positive and, probably, for many investors, their experience is not positive either.”
The only people who should consider single stock ETFs are those interested in day trading. But even then, you have to be aware of the risks and limitations inherent in these products and take appropriate measures, such as using automatic sell orders (also known as stop-loss) to quickly get out of a sour trade.
For those who don’t like day trading, individual stock ETFs are not as beneficial. Instead, opt for well-diversified ETFs for a more reliable wealth-building strategy.
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CNBC (1); Morning star (2); Barron (3); American Association of Individual Investors (4); Aptus Capital Asesores (5)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
