Single Stock ETFs: Analysis of Performance in Bull Markets
Following the interest rate cuts by the U.S. Federal Reserve (Fed), previously struggling tech stocks have rebounded. This has led to analyses suggesting that the attractiveness of single stock exchange-traded funds (ETFs) may diminish. The 'ACE Nvidia-Bond Mixed Bloomberg ETF,' which combines Nvidia stock with bonds, performed relatively well during Nvidia's stock decline but saw significantly lower returns during the bullish market. Specifically, while Nvidia shares rose by 140.81% year-to-date, the ETF achieved only a 36% return.
Similar trends were observed in ETFs holding Tesla and Apple stocks. Single stock ETFs provide a defensive role during stock downturns, but they struggle to keep up with the gains of individual stocks during a rally. This indicates that while single stock ETFs can serve as a protective investment tool, their efficiency diminishes in prolonged bullish markets.
Some U.S.-operated single stock ETFs are managed as leveraged products, such as the Nvidia Daily 2x (NVDL) ETF, which has surged by 273.27% year-to-date. This underscores that investors can expect higher short-term gains through leveraged ETFs. However, these products come with extreme volatility and inherent high risks.
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