The following news item is an excerpt from an Investment News Article dated August 18, 2022. The full article can be viewed HERE.
Massachusetts Secretary of the Commonwealth William Galvin announced a ‘sweep’ of firms offering the new ETFs, which he compared to gambling at a casino.
With the first single-stock ETFs only about a month old and the pipeline for new offerings suggesting that dozens more will be receiving approval from the Securities and Exchange Commission, Galvin’s office is seeking to protect “Main Street investors” from harm by initiating a “sweep of complex single stock exchange traded fund offerings recently made public and offered through Massachusetts registered broker-dealers.”
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“These are risky products, investing in only one stock, with no diversity cushion whatsoever,” Galvin said in a prepared statement.
“For nearly all Main Street investors, there is no difference between investing your money in single-stock ETFs and gambling with that money at a casino,” he added. “Under no circumstances should an investor use these products as a long-term investment.”
Most in the ETF community consider this step to be an overreaction and political grandstanding. Nevertheless, almost all in the professional community wish to warn investors that these tools are for short-term traders only and should not be held by long-term investors.
The first wave of leveraged ETFs was launched by AXS Investments in early October:
Current ValuEngine reports on these stocks can be viewed HERE
AXS TSLA Bear Daily ETF (Nasdaq: TSLQ);
AXS 1.25X NVDA Bear Daily ETF (Nasdaq: NVDS);
AXS 1.5X PYPL Bear Daily ETF (PYPS);
AXS 1.5X PYPL Bull Daily ETF (PYPT);
AXS 2X NKE Bear Daily ETF (NKEQ);
AXS 2X NKE Bull Daily ETF (NKEL);
AXS 2X PFE Bear Daily ETF (PFES); and
AXS 2X PFE Bull Daily ETF (PFEL).
Shortly thereafter, GraniteShares and Direxion Shares came out with the following:
GraniteShares 1.25x Long TSLA Daily ETF (SL)
GraniteShares 1x Short TSLA Daily ETF (TSLI)
GraniteShares 1.75x Long AAPL Daily ETF (AAPB)
GraniteShares 1.5x Long COIN Daily ETF (CONL)
Direxion Daily AAPL Bear 1X Shares (AAPD)
Direxion Daily AAPL Bull 1.5X Shares (AAPU)
Direxion Daily TSLA Bear 1X Shares (TSLS)
Direxion Daily TSLA Bull 1.5X Shares (TSLL)
There are a number of additional filings out there but as of this writing, these 16 constitute the selection set in the US. However, only seven different stocks are covered: Apple (AAPL); Coinbase (COIN); Nike (NKE); Nvidia (NVDA); PayPal (PYPL); and Tesla (TSLA). While ValuEngine does not rate these new trading vehicles, each stock is covered with a comprehensive report.
The following table compares them from a top-level perspective. All data are as of August 28, 2022.
| AAPL | COIN | NKE | NVDA | PFE | PYPL | TSLA | |
| Stock | Apple | Coinbase | Nike | Nvidia | Pfizer | Paypal | Tesla |
| ValuEngine Rating | 3 | 1 | 3 | 3 | 3 | 2 | 5 |
| VE 1 mo. Forecast | -0.3% | -1.1% | -0.1% | -0.2% | 0.3% | -0.9% | 2.5% |
| VE 3 mo. Forecast | 3.6% | 0.4% | 2.8% | 3.9% | 0.1% | -0.1% | 2.4% |
| VE 1 Yr Forecast | -3.8% | -12.6% | -1.2% | -1.9% | 3.5% | -10.3% | 31.6% |
| Historic 1 mo. Price Return | 16.2% | 35.3% | 6.6% | 8.8% | -11.6% | 29.8% | -58.2% |
| Historic 3 mo. Price Return | 7.9% | -11.9% | -7.0% | -16.0% | -14.3% | 8.7% | -62.5% |
| Historic 6 mo. Price Return | -2.3% | -65.2% | -21.0% | -35.2% | -1.5% | -17.2% | -67.3% |
| Historic 1-Yr. Price Return | 5.4% | -74.7% | -35.8% | -30.4% | -1.1% | -67.9% | -61.0% |
| Historic 5-Yr Ann. Price Rtn | 29.5% | -124.3% | 13.3% | 30.0% | 8.4% | 7.8% | 52.5% |
| Volatility | 30.6% | 88.8% | 26.0% | 47.2% | 24.3% | 39.8% | 63.1% |
| Sharpe Ratio | 0.96 | -1.40 | 0.51 | 0.63 | 0.35 | 0.20 | 0.83 |
| Beta | 1.20 | 3.86 | 1.02 | 1.70 | 0.61 | 1.48 | 1.00 |
| Div. Yield | 0.6% | 0.0% | 1.1% | 0.1% | 3.5% | 0.0% | 0.0% |
| Earnings Growth | 4.0% | -70.1% | 7.4% | -4.1% | -4.0% | 9.0% | 50.2% |
| Trailing P/E Ratio | 26.6 | Neg. Earnings | 29.9 | 43.3 | 7.5 | 31.5 | 98.1 |
| P/S Ratio | 6.7 | 2.5 | 3.6 | 13.3 | 2.6 | 4.1 | 13.3 |
| Valuation Decile | 9th | 10th | 6th | 10th | 3rd | 2nd | 2nd |
| Earnings Surprise Decile | 5th | 10th | 3rd | 5th | 3rd | 5th | 2nd |
Current ValuEngine reports on these stocks can be viewed HERE
Observations
- Tesla gets ValuEngine’s highest rating of 5 for 6-to-12-month year-ahead performance. Tesla also comes up strong on the model’s valuation decile despite high traditional valuation ratios due to high earnings growth rate vs. mammoth relative price decline. Coinbase gets the lowest rating of 1.
- Coinbase is the most volatile stock by far with an annualized volatility of 89% and a Beta of 3.86 which is almost unheard of. Pfizer is the least volatile stock with a very low Beta. It is undervalued by most metrics but only rated as average on both timeliness of investment and valuation by ValuEngine.
- Apple has the best historic Sharpe ratio but is a relatively neutral investment now according to our models.
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Conclusions
The purpose of the analysis of the seven stocks currently available in single-stock ETFs was purely to provide background and analytic context for the underlying stocks. COIN is only available in a long ETF (CONL). Despite the fact that the models make it a stock that we recommend, long holders may wish to consider divesting. Adding leverage to a stock with that kind of volatility is a difficult argument to make. The model’s recommendations are for no less than a 1-month holding period and generally for holding between three and twelve months, not for a day. Again, these vehicles are intended for intraday or at most two-day trading. The reasons for this are that the compounding math of holding daily futures over a week or more is suicidal, and the management fees are among the highest of all ETFs. The results generated are far from the results you’d expect if you were to hold the stocks directly for a month. Unless one is a skilled day trader, it would be wise not to play with explosives.