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ETF Filings Target Single Foreign Securities

·2 min read

Recent filings from Roundhill Investments and Kelly ETFs outline plans to provide unleveraged exposure to individual foreign-listed securities via an ETF wrapper for a total of 40 funds.

After being available in Europe for years, the first leveraged and inverse single-stock ETFs debuted earlier this month. These newer filings, however, simply offer one-to-one exposure to stocks listed on non-U.S. exchanges that may be difficult for U.S. investors to access individually. The documents didn’t include expense ratios.

Both sets of filings say the funds look to capture the performance of the reference company and will implement swap agreements with major financial institutions to do so. Aniket Ullal, head of ETF data and analytics with CFRA Research, notes that most of the companies in the filings are available as American depositary receipts, but many of those are traded over-the-counter.

That most of the companies in the filings have associated ADRs means they are accessible to U.S. investors, but the ADR vehicle can come with its own set of problems. ADRs are often illiquid, which can result in large bid/ask spreads.

Plus, they can be subject to double taxation and may have additional costs associated with currency conversion. Further, OTC markets are also notorious for liquidity issues. By relying on swaps, the proposed ETFs could circumvent these drawbacks.

“The issuer may be trying to provide an alternative that improves price discovery during US trading hours or lowers the cost to investors, although the latter will be clear only once the expense ratio of the ETFs are announced,” Ullal said regarding the filings.

The funds in registration from Roundhill carry the “TRAX” brand in their name and will be linked to the following companies:

The companies included in the filing from Kelly ETFs are as follows:

“Institutional investors, whether via prime brokers or other relationships, oftentimes have access to invest directly or indirectly in [non-U.S.] companies, whereas retail either simply does not have the ability to invest in these companies or can but it is very burdensome and difficult,” said Will Hershey, co-founder and CEO of Roundhill Investments.

Single-security ETFs have constituted a significant portion of launches during the month of August. Not only have leveraged and inverse single-stock ETFs debuted from AXS Investments, Direxion and GraniteShares, the first ETF offering hedged exposure to a single stock also rolled out during the month, as did ETFs providing exposure to a single Treasury fixed income security. There are also ETFs in registration that will apply an options strategy to individual ETFs and stocks.

The latest filings continue that trend.

[Editor’s Note: A previous version of this article misstated the number of ETFs in the filings and the companies covered by the Kelly ETFs filing.] 

Contact Heather Bell at heather.bell@etf.com

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