ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Global Diversification
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Market Insights
    • Megatrends
    • Modern Alpha
    • Multi-Asset
    • Night Effect
    • Portfolio Strategies
    • Retirement Income
    • Richard Bernstein Advisors
    • Tax Efficient Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • Company
    • About Us
    • Swag Store
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. Bloomberg: Dave Nadig on Single-Stock ETF Risks
News
Share

Bloomberg: Dave Nadig on Single-Stock ETF Risks

Aaron NeuwirthAug 19, 2022
2022-08-19

The amount of news regarding Single-Stock ETFs keeps coming in, particularly regarding the growth potential and the target market. It is also worth keeping in mind the risks. VettaFi’s financial futurist, Dave Nadig, was on hand during Bloomberg Market’s Tripple Take discuss what to keep in mind and what to look out for when considering these funds.

While these products haven’t been around for too long and do not feature too many assets, were they to grow into multi-million dollar products, Nadig notes how the risks could be similar to the past regarding situations such as the VIX complex. Some very large VIX-tied leveraged ETFs had similar characteristics. It involved an end-of-day rebalance to receive consistent and full exposure.

“When they get big enough, they start becoming a meaningful part of end-of-day trading,” Nadig adds. If there was a point where there was a mismatch between the liquidity of the underlying stock and the single-stock ETF, there could be a real problem.

Given the heavy involvement of Tesla, particularly (TSLL ), given the way things are going, there’s likely nothing that’s really going to disturb the market. Add a “0” to that fund, and even in Tesla, there starts to be end-of-day buying that becomes very predictable every time it’s up. For Nadig, the worst-case scenario would be having 500 stocks covered by these funds with 3-5 variants each – thousands of tickers – inevitably, one of those securities is going to the next larger company, which could lead to some problematic market structure issues.

Better Than Before?

As far as finding any room for risks being potentially less impactful compared to these similar scenarios of the past, Nadig is not so sure about this. “You can’t really pick and choose for an end-of-day rebalance. If they simply chose not to rebalance at the end of a given day because Telsa is up 10% and they felt like they were going to be adding froth to the mixture, that means tomorrow they’d be going in with the wrong exposure. It would mean they’d be underexposed, and if it goes up 10% tomorrow, it would no longer track.”

While the active management may provide a bit of a pass with the SEC on a few things, the fundamental math problem is not solved – “should some of these get over their skis in terms of how big their funds are versus the underlying.”

Looking at investor behavior, as far as whether or not this encourages more trading over investing, Nadig feels regulators have been pretty clear when putting out these products – they are nervous too. Could it engender more trading – perhaps for sophisticated investors and day traders. However, those who are a bull on Tesla may see what may come across as a good idea, only to hold onto the fund for six months instead of a day, which is a real problem for leverage and inverse funds.

“I have no doubt that, mathematically, these products are going to do exactly what they say they’re going to do,” Nadig adds. “The problem is, what these funds do can inherently be a little bit risky and a little confusing.”

Watch the video here.

For more news, information, and strategy, visit VettaFi.com.


Content continues below advertisement

» Popular Pages

  • Tickers
  • Articles

Jan 31

A Recap of the Night Effect in January

Jan 31

Vanguard: Fixed Income Seeing Strong Flows

Jan 31

Confluence Asset Allocation Quarterly Q1 2023

Jan 31

Embrace a “Dividend Decade” in a Quality Dividend ETF

Jan 31

ETF Prime: Disruptive Tech and International Stocks

Jan 31

Emerging Markets Ex China ETF Launched by Strive

Jan 31

QINT Catches Eyes With Quality International Equities

Jan 31

Investors Look to Equal-Weight and Quality Factors

Jan 31

Bonds Facing a Better Year: Capture With BNDI

Jan 31

Top Performing Leveraged/Inverse ETFs: 01/29/2023

QQQ

Invesco QQQ Trust

SPY

SPDR S&P 500 ETF Trust

VOO

Vanguard S&P 500 ETF

VGT

Vanguard Information...

SMH

VanEck Semiconductor ETF

XLK

Technology Select Sector SPDR...

VTI

Vanguard Total Stock Market...

SOXX

iShares Semiconductor ETF

BLOK

Amplify Transformational Data...

META

Roundhill Ball Metaverse ETF


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © 2023 VettaFi LLC. All rights reserved.
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X