Secretary of the Commonwealth William F. Galvin has directed his Securities Division to initiate a sweep of complex single stock exchange traded fund offerings (ETFs) recently made public and offered through Massachusetts registered broker-dealers. 

The sweep focuses the issuance of single stock ETFs to retail investors. Single stock ETFs present risks in the form of increased leverage and exposure to the volatility of only one stock. Such a product may not be a suitable offering for most Main Street investors. Like leveraged ETFs, single stock ETFs require daily monitoring by the investor and do not track the underlying performance of a stock over time.
“These are risky products, investing in only one stock, with no diversity cushion whatsoever,” Galvin said today. “For nearly all Main Street investors, there is no difference between investing your money in single-stock ETFs and gambling with that money at a casino.”

“Under no circumstances should an investor use these products as a long-term investment,” Galvin added.

While single stock ETFs may be suitable for day traders, most retail investors would be better suited to invest their savings in long-term holdings. Galvin’s office will be reviewing offerings in Massachusetts to ensure that broker dealers are not recommending them to retail investors for whom they would be unsuitable.

Inquiry letters were sent today to Foreside Fund Services, IMST Distributors, ALPS Distributors, and Quasar Distributors. The entities receiving the inquiry letters are registered broker-dealers in the Commonwealth which distribute the Direxion, AXS Investment, GraniteShares, and F/m Investements product lines, respectively.

The Securities Division has requested responses to the inquiry letters no later than September 1.