Karl Cheong thinks single-stock ETFs are good for investors. They aren’t.
He’s executive vice-president and head of ETFs at Ninepoint Partners LP, a firm that “manages innovative investment solutions that offer investors the benefits of better diversification.”
These single-stock ETFs began as a niche experiment in the U.S. in 2022 and have now crossed the border into Canada. According to TD Securities’ 2025 ETF Recap, more than a hundred single-stock ETFs now trade in Canada. These ETFs have pulled in $3.4 billion in new money, taking total assets under management to $3.9 billion.
Funds tied to high-profile domestic stocks have alone attracted more than half a billion dollars in under six months. That’s a sliver of the near $800 billion Canadian ETF market, but a striking growth rate for a new segment.
Yield-enhanced, leveraged single-stock ETFs, along with commission-free online trading, provide young investors easy access to investment products once considered too exotic for retail investors.
Advisors are being careful, adding them to client portfolios as tactical plays, if at all.
There are three reasons to be skeptical.
First, these products are worse than they look. Covered calls have their place, and that place is range-bound markets. Ninepoint states that clearly on its website: “They tend to work best in flat or range-bound markets where volatility supports steady income. In strong rising markets they may lag the stock because gains are capped, and in downturns they can lose value — especially when volatility is low and option income is reduced.”
But they’re needless for long-term investors. You cap your upside and do nothing to protect your downside — that is the reality of a covered call strategy. PWL Capital’s Ben Felix has several videos on YouTube looking at these products from an evidence-based perspective.
“You get income in return,” is the rebuttal. But investors should care about total returns. The focus on solely how much income an investment may pay is a mistake.
Consider a homeowner who paid a million dollars for a property, collects $5,000 a month in rent, and refuses to acknowledge the neighbourhood has declined to the point the house is now worth a quarter of what the homeowner paid. The rent cheques keep coming. But the value of the investment has evaporated.
Investors must focus on an underlying investment’s total return. Not just how much income it pays.
Second, the marketing is clean, but the products aren’t. Simple and easy aren’t the same thing. These single-stock ETFs are easy. They aren’t simple.
An investor who believes they can buy shares of TD bank with 25% leverage, and get even more of a dividend than TD pays because of covered calls, misunderstands the nature of leveraged investing.
If you want exposure to TD, just buy TD. No capped upside, no amplified downside, no management expense ratio.
Third, leverage by any other name is still leverage. It doesn’t matter if you’re using your credit card, line of credit, margin, options or a single-stock ETF. Leverage feels good when things are going well but hurts a lot when things aren’t. And loss aversion is real. Good times feel good for a short time. Bad times feel like hell for a long time.
If you put $100,000 into something like a 25% leveraged TD single-stock ETF and TD shares drop 10%, you’re on the hook for a $12,500 loss. Not just a $10,000 loss. And when TD shares go on a tear, the covered call caps how much of that you capture.
There are no shortcuts in investing. There are only trade-offs. Risk and reward are partners. You don’t get one without the other. There will always be investment products pitched to you that sound like shortcuts. They aren’t. They just juice returns on the way up and losses on the way down.
Cheong’s closing line deserves scrutiny. He argues these products reflect a mindset that favours “precision over breadth, control over delegation and action over restraint.” But precision over breadth is just concentration, and concentration means more risk on the downside with no guarantee of more reward on the upside.
Delegating to a professional that helps investors stay diversified and restrain themselves whenever markets move to extremes is one of the most valuable parts of the advisor-client relationship.
The changing investor mindset Cheong mentions is a mindset finance professionals need to fight back against, because these products fuel a destructive fire.