The Single-Stock ETF Era Is Born

has been born. We weren't sure it was going to happen, but this is a category of ETFs that are linked to single stocks, which is almost I think silly to some people. For example, in e t F the tracks uh Tesla to some degree either leveraged or inverse or

ETF tracks Nike or Google. Um. There are reasons for it we'll get into, but the SEC has approved these, not completely the way they are filed, but close enough that I do believe we're going to see hundreds, if not thousands of e t s because there's four thousand stocks and there's many things you can do. And so the first one was launched last week or a bunch of them, and the one that I had a feeling would be the biggest hit was the biggest hit Inverse

Tesla TSLQ. The volume one. It went from six million day one twelve million day two. It's rare to get twelve million that new, and it's rare to have volume grow. Usually day one is a big splash and then it goes down. That tells me this is going to be a pretty big hit product. So once there's a hit,

that's only going to encourage more people to file. So, uh, this is a really exciting and maybe an area that really requires some explanation for someone out there going, why do you need an e t F for a stock?

So joining us on this episode, we've got Matt Tuttle, who's the managing director of Access Investments, one of the companies that's begun putting out these single stock etts, as well as Katie Greifield, reporter with Bloomberg News who's been covering these launches, this time on Trilliance Single stock et s. Matt, Katie, welcome to Trilliance. Thank you for having me. Matt. Let's start with you, why does the world needs single stock ets?

The world definitely needs single stock ETF. So I've been trading since the eighties, and you know, back in the day, you'd always I wish this existed, I wish that existed, and you know, it was never in a position to actually make that happen. And and now I am. So you know, I talked to retail investors on Twitter and you know, in through email all the time, and you know, there's a couple of things they really like to do.

They like to trade on margin, they like options, and they typically are agnostic between being longer short a single name. So what single stock ETFs do is it gives investors a way to easily kind of express those options in a nice package. So not everybody likes to trade options. I mean I personally don't. It's kind of a pain in the butt. Um. Not everyone likes to or can access margin um, and not everybody likes to or can go short. You can't short in an IRA retirement plan.

So it just gives investors another way if they've got a bullish opinion or a bearish opinion on a stock, to express that view. What were the hurdles to bring to bring this to market? Because, as Eric mentioned, uh SEC didn't totally go for this at the start. So these are complex products obviously, and leverage and inverse ETFs. I mean, we all know that they provide the return

in a single day. Once you start compounding the returns, you know, what you end up getting, you know, may not be exactly what you expect, and so there really there is education, but there needs to be a lot more education for investors on you know, if you hold onto this for a longer period of time, you know there could be issues. So you know, the SEC to address that came out with their new Derivatives rule, which you know expectedly is not designed with single asset ETFs

in mind. So you know, I think the biggest hurdle that that we had there was just making sure that these fit within the rules as they were designed. Um let me jump in there, because when you filed, you originally filed for also a two x tesla, which to me is somewhat of the holy grail. I think that anything around tesla, I think is going to sell. You ended up coming out with a one point one x tesla, which is just a little tiny dose of leverage. Mean

it's almost unnoticeable. And then but they allowed you to come out with two x fiser and you know, my colleague James Stafford looked at that and what he did is he looked the volatility of the stocks, and if you work in that leverage, you realize that it looked like the SEC was looking at standard deviation and saying, well, we're okay with two x visor because it's not that volatile, but Tesla will't willing go a tiny bit of leverage. Are they actually using volatility as a way way to

sort of regulate these things? So to an extent, they're not looking specifically at standard deviation, but they've they've got a calculation that we've got to fit these into. So when we initially filed, we said, you know, we'll file for two acts, you know, because that's the maximum we know we can do, and then we'll go through the

process and see, you know kind of where we end up. Um, you know, without giving away the secret sauce, because I don't know that other people have kind of figured this out. You know, you've you've basically got to fit it within those derivative rules and the more volatile stock. I mean, Tesla has a standard deviation over four where I don't remember what visor is off the top of my head, but it's nowhere near for you know, the more volatile the stock, the tougher it's going to be to kind

of fitted into that box. And again going back to the rules aren't designed for a single asset. And so mean, I've tweeted about these launches. Eric has tweet about these launches. It's spurred a lot of pearl clutching on Twitter, like just a lot of people saying, oh, this is the top,

even though it feels like maybe worth the bottom. But in any case, one of the tweets that did catch my eye, which was interesting, you know, you mentioned that these e t f s, the inverse et f s could be access for people who can't short otherwise too short of stock express that bearsh view. And someone made the point on Twitter that people might use this to get around having to set up a margin account, like maybe there's a reason why they're not able to short.

Oh sure, I mean, you know, margin is is one big thing you know that went into this more on the longside, but certainly on the short side as well. I mean a lot of times people don't like margin. Sometimes you can't I mean, I invest in in all my own products, and those aren't margin able, So I mean, I can't buy on margin unless I invest in other things, So not everyone can do it. So yeah, I mean, it's totally a way to get around that. Um, let

me just ask you what it holds. So if you were to go into the access capital markets desk in the portfolio design team at your office, just explain to me what is in the holdings. Will use the inverse Tesla E t F as an example, since that's the biggest one Tesla Q and and also in addition to what it holds, like how does this work exactly? What are those people doing so and in the answer is

the same thing that they hold swaps. So we've got counterparties that we go out to, and so in the case of Tesla, we say, hey, we need a swap that gives us, you know, basically looks and smells and feels like we're short x amount of shares of Tesla, and being a levertor and inverse CTF, we need to rebalance that every single day because the moment Tesla or anything opens for trading, we're out of balance. So we got to get back into balance by the end of

the day. So every day we're calling up our counter parties and we got spreadsheets that we said, you know, all right, I need to short a hundred shares of Tesla. Now I need two hundred. Now it's one fifty. And we tell the counter parties at the end of the day, hey, look, we need to short another hundred shares of Tesla. Now. Sometimes the stock gets so bad it is expensive to borrow too short. Is that borrow cost embedded in the swap price or where? How's that work? Yeah, the borrow

costs gets embedded in the swap price. And and and that's an important point. I mean, sometime some people on Twitter have said, well, you know, if if we buy the inverse, we don't pay the cost of shorting. You do. But you know there's a chance that, in a very good chance, we're getting better pricing on that than you know you are in your schwab account. You know, Eric tesla Q has an amazing backstory. It's been a cover

of Bloomberg Business Week. Actually, the the Twitter group that basically assembled around that that cash tag and was very vocal anti e Lawn, anti Tesla. And I'm curious, you know, we're early on this launch. But how does this launch rank in terms of all time great ETF introductions. It's probably the best intro launched since bidd Oh I think. I mean, there's a couple other dicel ones, but to go from six million to twelve again, that that's unusually.

The other one I'm thinking of as you vix when they relaunched the t VIX and x I v under new names. But I look back, even those were like three million the first day and then maybe four the second, but those have also built. It's what you want is something that builds slowly. Reminds me of the movie office. Space kind of didn't do that much of the box office, but the rentals just kept creeping up over time because people word of mouth. They were like, you've got to

watch this movie. That happens sometimes that's what you want. That That is how you get a classic, That's how you get volume. So to me, this is probably one of the better launches of the last couple of years. Well, Matt, to that end, you had this audience built in which was already familiar with this idea, and then you had this idea for the product, which came first the recognition of the audience or the idea for the product, the

idea for the product. So I mean, you know, we kind of we We did Stark back last year, then we followed that up with Tark, and the idea was to follow that up with with Tesla. We just felt like all of those fit into a real nice bucket and and appealed to a lot of the same type of people. And so, like Eric said, I mean, this is an entirely new category. As Eric would say, it's

a vanguard free zone. So if you look at the the access uh single stock ETFs that are out there so far, I think they charged a hundred fifteen basis points each. Obviously there is a very long line for other single stock ETFs to launch. I think there's over eighty filings, which is just insane, with a bunch of different issues too. Yes, exactly. So I mean does that fee have to come down? Do you anticipate that you're going to have to cut these fees? I mean anything

is possible. And I mean, number one, let's see if these guys get their stuff to market. It's it's not easy, um, And you know, and us going through it for the first time, obviously it took longer than the seventy five days to get it done. Um So we'll see whether those come out, We'll see what they come out in pricing, We'll see what they what names they come out with, and you know, we'll we'll play that by year. But I would assume if this turns into a real massive market,

then yeah, I mean you're gonna have v compression. You know, you can't have a you know, one point one five spy. So yeah, yeah, I mean this is a very good area if you're an asset manager because Vanguard will never play here. And the thing is, if you get out early and you get a liquid et f like if if tests, if t s LQ gets, say, start starting a DWO million like Sark does, even a copycat, is you're gonna have pricing power for a long time. Um. So that's why I do think you're gonna see so

many people launchers. Ben Johnson put it, the spaghetti cannon is going to be probably like they're gonna we're gonna break this spaghetti cannon. That's how much it's gonna get used. And I will ask you, you know, we saw a spaghetti cannon. Is that a thing I haven't I haven't actually seen a spaghetti con cannon is like, is that similar? No, it's it's a it's a it's an imaginative thing that Ben Johnson The Morning Star came up with, um and

Everybody's stolen. It's a great phrase which he just just describes like when there's something hot and ETFs, you just see so much spaghetti flying at the wall that it's almost like a cannon. It's not just throwing, it's like just just a giant water of spaghetti. And then you'll have a lot of things that don't make it um. One of the things I wanted to ask Matt though, was about this new category. Obviously you'll have like leverage

and you'll have inverse on many stocks now. I also saw filing just last week for yield chairs, which are I believe, gonna do a follow a stock and then do a cover call strategy on top of it. I mean, it seems like the sky's the limit. We're just basically in like almost like a new country where people are gonna set up shop and do all kinds of stuff. How far can this go? I mean, you you hit the nail on the head. I think there's all sorts

of different ways to slice and dice it. Um you know, covered calls, puts, you know, all sorts of things with different options, strategies. You know, I think at some point you you kind of do run your course, and you know there's only you know, there's only so much money floating around and only so much interest, So you know, I think it can get a little bit crazy. But

you know what we'll say. Yeah, you know you mentioned Sark and target second ago, and I just want to rewind and go back to that, because what did you learn from introducing those that maybe informed tesla Q and and wherever else you could go? So I mean, and it really actually it goes back to so Go I mean, so Goa was our first inverse ETF, and inverse ETFs, like single stock ETFs, are not easy, and there's nobody around to tell you, hey, this is how you construct

an inverse ETF. And obviously the players in the market we're not willing to to share unfortunately. So with so Good, we learned how to do an inverse ETF, which then made Sark very easy. And then you know, Tark the same thing. You know. The other the other part of that too was being able to get swap counterparties, which, since ARCA goes, is not easy like and not easy as an understatement. So you know, we learned how to do that. Um, I learned how to use Twitter. I mean,

I'm I'm fifty three years old. A couple of years ago, or maybe even a year ago, I didn't even know what Twitter was. Uh so I learned how to do that, which is good because the Twitter guys like this stuff. I was gonna say, of all the times to introduce a Tesla cue products with Twitter and Muskin, you know, total fallout, it seems like a pretty good moment for that. Timing was not bad. How much time do you spend

on Twitter now? It it depends. You know. It's good that I've got a dog who likes to go on really long walks, so I mean we could be out for like an hour and a half and you know I'm on Twitter then. Um. You know, during the day when I have time, I do wake up way earlier than I want to, so I tend to spend some time on Twitter then and I dream in tweets. It's

not awful, You're all you do tweet a lot. Yeah, unfortunately, but in any case, we should talk about the SEC because there's been some worried noises coming out of some of the commissioners there. You had a commissioner Caroline Crenshaw. She called for the agency to a top new rules on single stock ETFs. Even Chair Ginsler said that the products present a particular risk, and yet they launched. But I'm curious if you're worried at all, even though you're

out the door. I mean, what could the backlash be here? I mean, I'm not necessary severially from from the standpoint that you know, there are tons of LeVert and inverse things that are out there. And again it comes down to education. You know, like I said before, it's that glide path, the compounding of returns that's going to be different. You know, I don't think these present any danger in

any way, shape or form. There's no market risk and you know, and and a lot of it seems kind of disingenuous where you know, hey, these single stock and inverse ETFs, you know that's risky. But like buying r K in February of you know, two thousand twenty one at the top that that's fine. You know, there there's you know, there's a lot of stuff out there in the marketplace. That's that's extremely risky, and you know, I just think it's an educational issue more than anything. Um.

So you have t SLQ and you've got SARK. Have you had any feedback from either Elon or Cathy based on the fact that you have these products going the other direction? I know Ellen is in particular sensitive to the shorts. Um Kathy. Also, you've got TARK, so you're kind of almost building a little You're adding to the ecosystem around that fund, which I argue is good because

it draws more volume in. But maybe she was there any I guess between those two people, if you heard anything from them on either of these So Ellen, no, Um, Kathy. I can't talk about um. But one interesting thing, Tark actually helps her from the standpoint of every dollar we get into Tark eventually goes back to her because we've got to go buy a swap and then the counterparty has to hedge themselves by buying ARC, so you know

that that's actually a net positive for them. Somebody had this idea with Tark that Kathy should just buy Tark, which would with then you'd have to go out and buy shares of ARC, which would then buy more Tark and create this upward spiral in the shares of arc is that am My is my head just not smart enough to understand why that would or wouldn't work. I mean I saw that in my brain hurt trying to kind of figure that out. You know, so I I,

I don't think it's gonna happen. Then. Now the best thing I saw someone on Twitter took her Holdings thing that she sends out every day and mocked it up and had a sark and it looked totally real. And I saw that on Twitter and I was like, oh my god, no, that's fake. But it threw me for a second. Okay, so we're ultimately talking about some stuff

here that that it does get a little wonky. And you know, Eric has a traffic light system that he's developed at Bloomberg Intelligence to sort of help investors make sense of where E T F s of fall. And you know, there's an amazing episode of Trillions that we we recorded with our dads once upon a time, and um, if you listen to that, you'll learn that you know, Eric's dad all in on on lever and and levered oil, and you know ended up juggling some chainsaws that probably

hurt himself. And so Eric, I'm wondering how how red does b I rank these products? So these would actually be yellow. Um we haven't ranked TSLQ do every quarter, but um, I know SARK would be a yellow. If you go one time inverse, we don't find that too too awful, too dangerous. It's when you go to three x anything that's when the daily resetting of the leverage

can really hurt your daily inverse. Like if you look at s H which is the one time in verse SMP, you largely get the opposite the SMP medium term as well. It's not perfect, but it's not like a three X where you could actually get the call right. Because of some volatility, you actually lose money. That's where they're red. So we would do yellow. If they come out with two X TESLA, that would be read. Anytime you go to X anything, we read, so right now you're yellow

unless I can find something else. Um Like if you roll futures or the taxes weird, it might bump them up to a red. But that's how we look at it. So that makes sense. So what would your what are you gonna tell your dad. When your dad calls you about this product, all in, tell him, I'm gonna I'm going to tell him stick to your big oil stocks. He likes big oil companies and a couple like he likes a T and T for some reason. Like just stick to those. It's fine. Your your dad actually called

me and I told him to go all in. My dad bet on the British Open like, I mean, he's like, so, I was like, you have enough going on? Okay, just you know he lost though he had Royal Michael Royan. He almost wanted. I mean it was brutal. Yeah. I do have a question sort of. You know, we're talking about how crazy and wild the space could become. But could you ever just see a single stock E t F that isn't leveraged or inverse that literally just holds

the stock or is that actually just pointless? To me? That would be pointless. I can't imagine that that anyone want to do it or or even try it. Yeah, I think, um, that's what they call a bad idea. Yeah, I will say to the launch it, give it a shot, or just an E t F to try spy just yeah we're spy. Yeah, Well, look the inverse ones make

a ton of sense. I remember I've received multiple people over the past couple of years that have said, can you tell the issuers to launch an SMP fix Tesla just because they just they want to hedge out Elon's the Elon risk, you know, of whatever he does. And I I think that's part of a of a really understandable use case is either a head of earnings or if there's a company where you're just worried about the CEO or a change, you could just quickly buy this and you are hedged for a month or a week

or a year. Um. I think that's probably the most accurate use case. I think as it gets volume, you might see some institutional usage, especially if there's options around this. I'm assuming you're gonna there's gonna be options. There are options already. Wow, Okay, yeah, I mean that was amazing actually that we got that that quickly. You know, this all makes me wonder, you know, if you could rewind the clock. Tesla obviously over time is performed and exceedingly well.

If or wherever a bitcoin E t F you could kind of imagine this, is there any way that you could leverage the upside here too, and like compound it so that you're not shorting it with this, but like you know, get the upside effect of of a stock that you're really bullish on for the long term. What would that look like? So not within the derivative rules where we're working on some more advanced ideas for you know, being able to maybe do it two x tesla um.

It's it's unlikely the idea will be well received, but it's something we might we might try. But you know, the way the current derivative rules are, it's going to be very hard. You're gonna lock it down to that single day well, but it's also going to be very hard to get leverage on something that in and of itself is very volatile. Speaking of advanced ideas, so I was on med Favors podcast, great podcast, by the way,

listen to it. We had a great discussion. At the end, he's like, Hey, what are some et F ideas that aren't in the market that you think should be. So I gave him to um. One is the Congressional stock Tracker, or if you want to be specific, just Nancy portfolio Man, Nancy Pelosi's portfolio. That nance is what I would think that would fly off the shelves. I think, but it I have looked at that and I'm not I'm not sure. I mean, it may fly off the shelves, but from

an investment standpoint, I'm not sure it would work. Because so the problem is it's not Nancy. Because the problem with launching a product around Nancy is what happens when she retires. Well, that's why I thought, well, maybe you do Congressional stock tracker, because there's actually a couple better than her. Somehow. There's this one guy from like Illinois. There's like service, there's a service that tracks it, and I've talked to the guy who does it, and he

keeps telling me the performances really isn't that good. That that's the problem. I mean, it's something that I have looked at a lot and will continue to look at. But if the performance isn't that good, it's it's unfortunate.

I had another one I went over with MEB, which was the inverse Jim Kramer E t F, which I think would be called the Same Money E t F. That way, you don't deal with any like copyright issues with his show, and the ticker would be say any and I he is wrong a lot, obviously, but he's

wrong big a couple of times a year. And like like coin based to four hundred, if you would shorted that man that that's like a a monster performance and all you need is a couple of those bad boys to power the e. T F and MEB said that seems like something Tuttle would launch. I feel like Matt might want this sounds perfect for you. Yeah, it would be perfect for me. Watch this space potentially, watch this

space potentially. Okay, excellent, That's that's good. I like that. Um, you know, as we kind of wind up here matter, I'm curious, you know, to be a short it takes a special stomach, I think, right, and I'm wondering, like, you know, how are you wired? And like, what what's your outlook in the world, because effectively it requires rooting against capitalism sometimes and or or that I've been accused of. That would be how a lot of investors put it, right, So so I'm curious, how do you how do you

wake up in the morning and and feel about that criticism? Well, so remember we have both sides, and so you know, I'm not well, I am a bear right now, just because the market stinks, and yeah, I think we get another leg down um and I think they're going to be some great shorting opportunities to come. But really, what I am, what I believe in, is you've got to be agnostic between long and short. I'm not a fan of Hey, be a long term investor, just buy a

bunch of this stuff. I mean, you know, again, one of the things being out on Twitter is I see how people are just getting killed, and a lot of the Twitter guys have started to get it, and they're not buying the dips anymore. They're shorting the rip us and and you know, maybe they're recovering. But you know, I just think you've got to be agnostic between the long and the short side. And I wake up every

morning with absolutely no bias. I look at what the market's telling me, and that's what I think that day. As it feel to launch some of these products in this cycle, I mean, you couldn't have drawn this up any better. It feels like well, and you know, and

a lot of that was was by design. I mean, we were one of the big reasons we launched SARK is just looking at the macro environment saying, you know, we're due and the FEDS talking about raising interest you know, at that point, I don't think it was a definite, but they were talking about it and just knowing what happens to those stocks, you know, and not launching Tark at the same time we launched Sark because having a feeling if we did that, Tark wouldn't have done so well.

So a lot of that's by design. But yeah, the market is his. His has played out pretty well for me. Okay, question We asked at the end of every trillions, matt favorite e t F ticker other than your own, So that would have to be me because when I saw them file for that, it pissed me off that I

didn't come up with that idea. Yeah, yeah, yeah, there's if you look at all these hundred and fifty issuers, right, but there's little like little corners where there's a couple that are kind of the similar, spiritually similar, Roundhill, Tuttele and maybe a little global X. But yeah, I could see that. What about meta Q would you get there? You're talking about launching or short? Facebook? Oh short, Yeah,

it's so yeah. I mean I think what it's definitely going to be the future of kind of the single stock is what we saw in Tesla, where it's gonna be you know, kind of these you know, stocks that have larger than life personalities. So you know, one of the big things I think about short Tesla is is Elon Muss and so yeah, Meta's got the exactly. So I think, you know, these companies that have CEOs that are out there, I think those are gonna be interesting products.

The the thing that gives me pause about you know, and I can't call him that, I've got to call him Facebook a short Facebook, is that there are other products and you know, there's short fang Um, you know, and in there's some correlation to the nasdak. What I loved about Tesla is it's not correlated to anything. By the way, do all your tickers like ending Q that are inverse I don't remember off the top of my head.

The way we did it, though, is because of Bloomberg, Because if you type in TSL into Bloomberg, you might and you're looking for Tesla, you might actually get t SLQ. I also think you well, just while we're on this, if you put Q, I would put Q at the end of every inverse one and then people will just know met Q night q I just coming right out of me. Yeah right, send me a bill. I think some of the problems you have tour if those stickers are reserved, right, so you don't know imagine how it

wasn't reserved. So we went and we grabbed it. Wow. Even Mike Nudo didn't have it. He has a lot. Matt Katie, thanks for joining us on Trillions. Thanks, thank you. Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcast, Spotify, and wherever else you like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show.

He's at Eric Fultuness. This episode of Trillions was produced by Stacy Wong Spike the Fact