For those who want steady growth in their portfolios, exchange-traded funds (ETFs) are a common suggestion.
Since their introduction in the 1990s, ETFs have gained a reputation as a safe and smart choice for retirement savings, especially when they offer exposure to indexes like the S&P 500. However, a new category of “single-stock ETFs” flies in the face of this traditional image. In many ways, these new hot trading products are exactly the opposite of what an ETF was meant to be.
Unlike ETFs that manage large pools of assets, single-stock ETFs focus on a single company, but that’s not all. To amp up volatility, these higher-risk 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 over 200 launched in 2025 alone (1).
Typically, these single-stock ETFs track big companies like Tesla or Nvidia and offer investors double the exposure to the stock’s daily price movements. So, if Tesla goes up by 2% on any given day, someone holding its single-stock ETF will see a 4% rise.
That’s good news when the market moves in a favorable direction, but it also makes it really easy to lose money on bad days.
Although single-stock ETFs offer double the exposure today, plenty of firms are trying to increase this volatility, with some proposals aiming to offer products with upwards of five times the exposure (2).
The obvious attraction for single-stock ETFs is the potential for higher gains. When someone believes a stock is about to go up in the near term, loading up on single-stock ETFs will make them more money, but that’s only if said investor is correct.
This is particularly true during earnings season when stocks are extra volatile after companies release their respective reports. Unsurprisingly, Mo Sparks from the leveraged ETF firm Direxion told Barron’s that he sees the most “elevated activity” for single-stock ETFs during this time (3).
Another reason single-stock ETFs are so hot nowadays is their increasing accessibility. Without single-stock ETFs, traders need special privileges to access margin or exotic financial instruments to take on a position. By contrast, single-stock ETFs trade like other shares on a brokerage account.
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There’s also the potential to customize single-stock ETFs for different strategies. Some of these products are called “inverse” ETFs, meaning the investor profits when a company goes down. That may be useful if someone wants to bet against a company without opening a short position.
Although these features are convenient for some short-term scenarios, they go against all the tenets of long-term investing. First, these products are concentrated in one investment rather than offering lower-risk diversified exposure. Second, single-stock ETFs use high-risk strategies to deliver higher returns, which puts traders at greater risk of losing their funds.
There’s even preliminary research that single-stock ETFs perform worse than their underlying stocks over the long term. The American Association of Individual Investors notes that single-stock ETFs generally outperform the underlying stock for only one day (4).
Single-stock ETFs are short-term trading vehicles, not long-term investments.
Not only are single-stock ETFs more volatile than diversified funds, they have features that limit their long-term growth. For instance, firms that manage these ETFs recalculate their leverage daily through “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 drag,” where the ETF loses value relative to the stock (5).
With all of these features, there’s no safe way to approach single-stock ETFs as a long-term investor. It may seem like you’d get better returns with a double-exposure position, but the mechanics of these ETFs only work in a day trader’s favor. This makes single-stock ETFs a big “no-no” for retirement portfolios like IRAs and 401(k)s.
“These (single-stock ETFs) are speculative instruments that are not intended to be held for long periods of time,” Zachary Evens, manager research analyst at Morningstar, shared with CNBC (1). “In aggregate, the performance of these is not positive, and likely for many investors, their experience is not positive as well.”
The only people who should consider single-stock ETFs are those interested in day trading. But even then, you have to know the risks and limitations inherent in these products and take appropriate actions, like using automatic sell orders (aka stop-losses) to quickly get out of a sour trade.
For those who aren’t into day trading, single-stock ETFs aren’t all that beneficial. Instead, stick with well-diversified ETFs for a more reliable wealth-building strategy.
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CNBC (1); Morningstar (2); Barron’s (3); American Association of Individual Investors (4); Aptus Capital Advisors (5)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
