SEC Chair Gary Gensler Warns About New “Inverse Tesla” ETF

Investment manager AXS Investments launched the first leveraged single-stock exchange-traded funds (ETFs) on Thursday in the US, allowing investors to make “inverse bets” on companies like Tesla, Nvidia, and PayPal, among others. However, SEC chair Gary Gensler warned investors against these products earlier this week, saying they present a “particular risk”.

Single-Stock ETFs Debut on U.S. Markets, Attract Criticism from the SEC

Amid an extremely challenging year for the U.S. stock market and economy, the first leveraged single-stock ETFs hit the market today in the face of numerous warnings about their risks by regulators. While leveraged single-stock ETFs gained significant popularity in Europe, the products are making their debut in the U.S. market, enabling investors to make inverse or leveraged bets on their favorite individual U.S. companies including Tesla.

With the launch, AXS Investments became the first company to bring leveraged single-stock ETFs to the U.S. market, with several other firms working to launch their own products of this type. The move marks the latest addition to the booming ETF market, currently valued at around $6.2 trillion.

But even though the U.S. regulators allowed single-stock ETFs to come to the world’s largest market, the products still attracted criticism from the Securities and Exchange Commission (SEC). In a press call earlier this week, SEC chair Gary Gensler said this ETF variant poses a “particular risk” to investors.

The SEC has also repeatedly delayed its ruling on some Bitcoin ETFs this year, citing concerns over price manipulation and fraud. On the other hand, the first short Bitcoin ETF launched earlier this month accounted for almost 80% of digital asset weekly inflows.

Furthermore, SEC commissioner Caroline Crenshaw and the agency’s director for the Office of Investor Education and Advocacy, Lori Schock also voiced their concerns about these products and their volatility. Investors’ gains from leveraged single-stock ETFs “over a longer period of time might be significantly lower than they would expect based on the performance of the underlying stock” warned Crenshaw.

“These effects are likely to be especially pronounced in volatile markets.”

she added.

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AXS CEO Argues New Funds Are Meant For “Sophisticated” Traders

In response to SEC’s warnings, AXS Investment’s CEO Greg Bassuk said the firm will work to help investors learn more about leveraged single-stock ETFs, adding they were developed for “sophisticated, active traders.” These funds are not for “buy-and-hold investors”, said Bassuk.

He explained that this type of ETF is meant for traders that remain active on a daily basis, and who have the right education and skill set to invest in these funds. The launch of inversed single-stock ETFs marks another attempt by AXS to introduce niche products.

In addition to Tesla, the new funds will also allow investors to bet on several other single companies including Paypal, Nvidia, Nike, and Pfizer. AXS filed for launching a total of 18 funds, but only 8 of those will become available for trading immediately.

Do you think single-stock ETFs are a good idea for the US market? Let us know in the comments below.