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One of the cool things about investing is that there’s always something new on the scene. There’s no shortage of things to put your money in these days: crypto, mutual funds, stocks, bonds, ETFs, NFTs, SMAs, the list goes on, and so do the acronyms. The latest here in the US, single-stock ETFs.

The name itself is sort of confusing. Is it a stock, or is it an ETF?

An ETF, or exchange-traded fund, is a basket of securities that is sold on, you guessed it, an exchange. ETFs can be passive and track indexes, or they can be actively managed, and they trade throughout the day like stocks. ETFs can be great tools to utilize, especially since they can be tax-efficient, and like mutual funds, can provide diversification within a portfolio.

A stock is a security that represents a share, or partial ownership, of a company. So, if you’re confused about what a single-stock ETF is, you’re not alone.

The performance of a single-stock ETF is based on daily returns of an individual stock. These products use leverage and therefore magnify your exposure to the underlying stock they attempt to track.

Tesla, Coinbase, Nike, Pfizer, Paypal, Apple, NVIDIA are a few names with single-stock ETFs out there.

One example is ticker TSLL, the Direxion Daily Tesla Bull 1.5X fund. Its opposite is TSLS, the Direxion Daily Tesla Bear 1X.

According to their stated investment objective, The Direxion Daily TSLA Bull 1.5X (TSLL) and Bear 1X (TSLS) Shares seek daily investment results, before fees and expenses, of 150% and 100% of the inverse (or opposite), respectively, of the performance of the common shares of Tesla, Inc. (NASDAQ: TSLA).

If you keep reading, they go on to say, The Funds do not seek to achieve their stated investment objectives for a period of time other than a single trading day. The funds should not be expected to provide 150% or -100% of the returns of TSLA for periods greater than a day.

Greater than a day, that gives you all you need to know. These products are geared towards traders, not towards long-term investors.

The SEC even issued a statement with their concerns regarding single-stock ETFs and said, “investors’ returns over a longer period of time might be significantly lower than they would expect based on the performance of the underlying stock,” and that “these effects are likely to be especially pronounced in volatile markets”.

Having a diversified portfolio is your best line of defense against the concentration risk that exists when holding an individual stock. Taking an outsized bet on that stock by purchasing a single-stock ETF only increases that risk.

As one issuing fund company put it, single-stock ETFs are not for the faint of heart.