If You Are Shorting Tesla via the AXS TSLA Bear Daily ETF (TSLQ), You Are in for Chronic Underperformance and Years of Toil

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Tesla’s detractors can now lose money via a brand-new investment vehicle that is not only mind-numbingly dumb but also very risky.

To wit, AXS Investments has now launched first-in-class single-stock ETFs. Yes, you read that correctly. Instead of gaining exposure to a portfolio or an asset class, investors can now buy or short a single stock via an ETF, all the while paying exorbitant fees.

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To wit, the AXS TSLA Bear Daily ETF (NASDAQ: TSLQ) aims to provide levered daily returns from a decline in Tesla’s share price. On the other hand, the AXS TSLA Bull Daily ETF (TSLU) aims to provide 1.1x the daily return from an upswing in the EV manufacturer’s stock price.

AXS has entered into complex swap agreements with global financial institutions in order to offer these ETFs to the general public. The firm is offering such ETFs not only on Tesla but also on NVIDIA, Paypal, Nike, and Pfizer.

Source: https://www.axsinvestments.com/investments-home/#single-stock-etfs

So, why are these ETFs a dumb idea? Firstly, TSLQ entails an expense ratio of 1.15 percent – this is the annual cost to own the shares of this ETF. For comparison, the typical expense ratio of a S&P 500 index ETF varies between 0.05 percent and 0.15 percent.

Secondly, AXS believes that it offers investors an attractive opportunity to short Tesla via TSLQ, especially as shorting shares via the typical route also entails financing costs. However, the critical factor that investors need to understand here is that these ETFs reset to their underlying security – in this case Tesla – on a daily basis, thereby incurring costs that are much higher than those incurred via traditional margin accounts.

Just read AXS’s own risk disclosure:

“For periods longer than a single day, the Funds will lose money if the underlying stock’s performance is flat, and it is possible that the Fund will lose money even if the underlying stock’s performance decreases over a period longer than a single day. An investor could lose the full principal value of his/her investment within a single day. The Funds track the price of a single stock rather than an index, eliminating the benefits of diversification that most mutual funds and exchange-traded funds offer.”

Moreover, SEC’s Commissioner Caroline Crenshaw has also taken a dim view of these risky investment vehicles. Yet, the SEC has opted to approve these ETFs.

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Inverse Tesla ETF Performance

As far as performance is concerned, Tesla shares were up by 0.54 percent today amid additional clarity on Musk's ongoing tussle with Twitter. Predictably, the TSLQ ETF ended the day down 2.79 percent.

Do you think retail investors should be allowed to trade widow-maker ETFs such as TSLQ? Let us know your thoughts in the comments section below.

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