Single Stock Exchange-Traded Funds (ETF) (2024)

FAQs

What is single stock ETFs? ›

Bottom Line. A single stock ETF is a fund-based investment that tracks a single stock. These are designed to magnify the returns and losses of their underlying investment, making for potentially high rewards and equally high risks.

Collectively, there are roughly 45 ETFs linked to individual stocks, and these funds represent some $3.5 billion in assets under management. While that's still tiny next to the rest of the ETF industry, it's nonetheless impressive, especially considering the category had zero assets just a few years ago.

Bottom line. ETFs make a great pick for many investors who are starting out as well as for those who simply don't want to do all the legwork required to own individual stocks. Though it's possible to find the big winners among individual stocks, you have strong odds of doing well consistently with ETFs.

ETFs offer advantages over stocks in two situations. First, when the return from stocks in the sector has a narrow dispersion around the mean, an ETF might be the best choice. Second, if you are unable to gain an advantage through knowledge of the company, an ETF is your best choice.

While an ETF sounds like a simple “single” investment, it comes with enhanced risks; including lack of diversification, daily resets, leveraged structure, active trading needs, and compounding losses.

You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.

The single biggest risk in ETFs is market risk.

The greatest risk for investors is market risk. If the underlying index that an ETF tracks drops in value by 30% due to unfavorable market price movements, the value of the ETF will drop as well.

What is the safest ETF? ›

Vanguard S&P 500 ETF

Exchange-traded funds (ETFs) are one of the safer types of investments out there, as they require less effort than investing in individual stocks while also increasing diversification.

Holding an ETF for longer than a year may get you a more favorable capital gains tax rate when you sell your investment.

ETFs typically track a specific market index, sector, commodity, or other asset class, exposing investors to a range of securities in a single investment. Their benefits include liquidity, lower expenses than mutual funds, diversification, and tax advantages.

Single Stock Futures (SSFs)

Stock Options. Definition. A contract to buy or sell a single stock at a future date at a specific price. A contract that gives the holder the right, but not the obligation, to buy or sell a stock at a given price on or before a specific date.

Bond ETFs usually make monthly income payments.

One of bonds' biggest benefits is that they pay out interest to investors on a regular schedule, usually every six months. But bond ETFs hold many different issues at once, and at any given time, some bonds in the portfolio may be paying their coupon.