The Globe and Mail reports in its Thursday edition that the latest fad to come out of the investment fund space is taking ETFs in a strange new direction. The Globe's Tim Shufelt writes that traditionally, the great advantage of exchange-traded funds was their ability to combine several -- even hundreds -- of stocks in a single package. Now a number of new products have landed on U.S. exchanges that track just one stock, using leverage to magnify daily moves. The funds buy derivatives with borrowed money to generate returns that may be double the daily move of the underlying stock. There is an ETF that gives investors double the daily return of Pfizer if its share price rises. Another essentially bets against Tesla, gaining in value when the automaker's stock falls. There are now dozens of similar offerings lined up for approval from U.S. regulators, some of which have expressed misgivings about making the instruments of professional traders available to retail investors. By combining leverage with extreme concentration, single-stock ETFs have the potential to generate ruinous losses in the wrong hands. Canadian single-stock ETFs do not yet exist, but chances are they are coming soon to a stock exchange near you.
© 2023 Canjex Publishing Ltd. All rights reserved.