Re: Single-Stock ETFs highlight a gap between conservative advisors and FIRE investors
I appreciate Vince Herlaar taking the time to engage with my piece. Disagreement sharpens the conversation, and the rise of single-stock ETFs deserves scrutiny. But his rebuttal rests on three premises that do not fully reflect how these products may be used by investors.
First, “just buy TD” ignores why investors are using these products.
Herlaar argues that an investor who wants TD exposure should simply buy TD stock. In a vacuum, that sounds reasonable. But it assumes the only reason to hold a single-stock ETF is to replicate ownership of the underlying company. That is not what many investors are trying to do.
Investors are using yield-enhanced single-stock ETFs as a deliberate trade. They are accepting partially capped upside in exchange for monthly income, option premium and a different return path than simply owning the stock outright. It is a conscious preference for cash flow over pure terminal wealth maximization. The same preference drives demand for dividend stocks, bond ladders and annuities.
Telling a younger investor building a financial independence, retire early income portfolio to just buy stocks is similar to telling a retiree to just sell shares instead of owning dividend payers. On a spreadsheet, the two approaches may appear comparable. Behaviourally, tax-wise and emotionally, they are not the same.
Second, total return matters, but so does the path to getting there.
Herlaar uses the analogy of a homeowner collecting rent on a depreciating house. It is a vivid image, but it is the wrong comparison.
A covered call ETF on a blue-chip company is not a deteriorating asset that pays investors to ignore decline. It is the underlying equity, combined with moderate leverage and a systematic option-writing strategy, less fees. Its total return is observable and published.
The deeper issue with saying total return is all that matters is that it assumes investors behave like machines. They do not. Sequence-of-returns risk is real. Withdrawal timing is real. Behavioural pressure during drawdowns is real.
The investor who receives a regular distribution and stays invested through volatility may end up with a better realized outcome than the investor in a theoretically cleaner total-return vehicle who sells at the wrong time.
If advisors are keeping clients diversified and disciplined, then a modest allocation to an income-enhanced single-stock ETF inside a broader plan is not the threat Herlaar describes. Used appropriately, it can be a tool that helps some investors stay invested.
Third, leverage is not a slur. It is a feature that needs to be understood, priced and disclosed.
Herlaar is right that “leverage by any other name is still leverage.” Where I disagree is the implication that this makes leveraged single-stock ETFs uniquely risky. A fully regulated ETF listed and traded on a recognized public exchange with modest leverage is among the more transparent ways retail investors can access leverage.
Periodic regulatory filings ensure full transparency — leverage ratio is disclosed and financing costs are disclosed. An investor’s account is not exposed to margin calls and losses are limited to the amount invested.
It is also worth noting that a 25% leveraged covered call ETF does not always behave like a simple 1.25-times amplifier on every move in the underlying stock. In practice, the covered call overlay can dampen part of the downside participation, while the uncovered portion preserves some upside exposure. The result is not a risk-free product, but it is also not the one-dimensional “amplified downside” profile sometimes implied in critiques.
Investor needs
The real-world alternative is also important. When regulated products are unavailable, many self-directed investors do not always choose diversified index funds. Some use margin accounts, option strategies they may not fully understand or highly leveraged crypto products on offshore platforms.
Compared with that landscape, a Canadian-listed ETF with transparent rules, disclosed holdings and ongoing regulatory oversight may be a more responsible structure.
Herlaar suggests these products may fuel a destructive fire. I would argue the opposite. Meeting investors where they are with regulated, transparent and fee-disclosed products is how the industry stays relevant to the next generation. Pretending the demand does not exist, or trying to lecture it away, risks pushing investors toward less suitable alternatives.
The advisor-client relationship Herlaar champions is valuable. So is the investor’s right to choose tools that fit their objectives, provided those tools are clearly explained and properly used. Both can be true.
