A Single Stock ETF is a financial instrument that allows investors to buy fractional stocks of global companies and invest therein with minimal investment.
How does it work?
- Purchase of the Underlying Asset: The fund management company buys whole stocks of the company (e.g., TSLA).
- Split: The stock price is divided into a large number of parts (e.g., 1/100 or even 1/10,000).
- ETF Issue: Single Stock ETF units are issued for these parts.
- Low Threshold: An investor can buy a single ETF unit for a few dollars or cents, instead of hundreds of dollars for a whole stock. The fund's price follows the price of the original stock exactly.
Example (hypothetical) | Stock price | ETF ratio | Price per ETF unit |
|---|---|---|---|
TSLA Stock | ~$400 | 1/100 | ~$4 |
FRHC Stock | ~$160 | 1/10000 | ~$0.016 |
Investor Advantages
Single Stock ETFs offer a number of key advantages, especially for retail and novice investors:
- Low Threshold: The entry threshold for blue-chip stocks (Amazon, Netflix, Tesla) is lowering. Investing is possible with just a few dollars.
- Diversification: Splitting allows creating a complete portfolio of stocks in several valuable companies and efficiently distribute investments even with a small capital.
- Tax Benefits: The funds represented on the ITS trading platform are registered with the Astana International Financial Centre (AIFC) and traded on the Astana International Exchange (AIX). As a result, individual income from transactions with these funds is exempt from capital gains taxes.
- No Fund’s Fees (Total Expense Ratio, TER): The annual fee that covers the fund's expenses is zero for investors.
- Trading Opportunities: the instrument is highly liquid. It can be sold at any time during the extended 18-hour trading session (from 10:00 AM to 3:45 AM Astana time).
Risks and Features
Single Stock ETFs carry the same risks as owning the stock itself, but also have some special features:
- Market Risk: A Single Stock ETF reflects the price of a single stock. If the price of this underlying stock falls, then the price of the ETF falls. These funds are more volatile than diversified index ETFs.
- Ownership Restrictions: Holding ETF units does not confer voting or control over the underlying company (issuer).
- Dividends: If a company pays dividends, such dividends are accrued pro rata the ETF’s holding, but no fraction of a cent of the accrued dividends is paid upon distribution.