However, the next generation of ETFs proudly offer no type. Like the Canadian deposit receipt (CDR), a single ETF holds or at least draws its performance from just one basic stock, usually a major U.S. tech brand. However, contrary to CDR, this is not a regular vanilla exposure. Many single-share ETFs use option strategies, lending or both can amplify revenue or provide some form of enhanced returns. These are not traditional buying tools and have real risks, some of which may only appear in a turbulent market environment.
You need to do your homework before jumping in. These funds may look like familiar footers wrapped in convenient packaging, but their structure and strategy can lead to unpredictable results. This is what circumstantial Canadian investors know about single-stock ETFs.
Two types of single-share ETFs
Broadly speaking, Canadian issuers have launched two single-share ETFs. A type of investor seeking income. Another is for short-term traders who want to speculate on the direction of popular U.S. stocks.
The income-focused category focuses on harvesting ETFs and purpose investments. Both providers follow a similar script due to some minor differences. These ETFs typically use 25% portfolio leverage and write out a cap call on 50% of portfolio. This means that if the ETF holds $100 worth of stock, an additional $25 can be borrowed, similar to using a margin loan. The goal is to increase the overall basis for basic dividends and option income.
Covered phone calls involve selling the right of others to buy ETF stocks at a certain price before setting an expiration date. In return, the ETF receives a premium, which is allocated to income. If the base stock rally is above the exercise price, the ETF confiscates the upside. When only 50% of the location is covered, it exposes the other half to further gains.
The aim is to use this strategy on famous American names including Palantir, Advanced Micro Devices, Coinbase, Broadcom, UnitedHealth, Costco, Netflix, Meta Platforms, Nvidia, Microsoft, Berkshire Hathaway, Tesla, Tesla, Tesla, Tesla, Tesla, Thecement, Apple, Apple, Amazon, Apple and Alphabet. Harvest’s high-income stocks share many of the same names, but add additional names like MicroStrategy and Eli Lilly.
In a trading-centric market, it is a long-term ETF. The company offers a lineup of Savvylong and SavvyShort products that offer twice (two times) of bullish or bearish U.S. stocks every day. These ETFs are designed for tactical use rather than revenue generation. They do not use a covered phone or pay for monthly allocations.
Instead, they are built for traders who want to redouble their efforts in short-term movements like Tesla, Nvidia, Amazon, Amphabet, Apple and Microsoft. The way these ETFs achieve leverage is also different.
