Issuers of exchange-traded funds plan to roll out a wave of single-stock ETFs. These funds, a handful of which are already available, will bet against individual stocks or amplify their daily moves or both. Needless to say, single-stock ETFs have not been greeted with enthusiasm. Regulators are sounding alarms about their risks. Financial advisers are warning investors to stay away. CNN called them apocalyptic.
My colleague and ETF guru Eric Balchunas thinks the reaction is “overly-hyperbolic pearl clutching,” and he’s not wrong, mostly because ETFs jumped the shark long ago. The ETF industry was once a proud refuge for investors from the wolves on Wall Street. The first ETFs in the 1990s and early 2000s were mostly low-cost index funds that tracked broad markets. In those days, investors could buy pretty much any ETF and expect to be financially better off over time.