Summary Single stock ETFs, like MSTX, offer high returns but come with significant volatility, making them suitable for short-term traders rather than long-term investors. MSTX provides 2x leveraged exposure to MicroStrategy, amplifying both potential gains and losses, with a 1.29% expense ratio. MSTX and MSTU are similar, but MSTU's lower expense ratio and earlier 2x leverage have attracted more assets. Michael Saylor's influence in the bitcoin space boosts sentiment and makes MSTX an appealing option for bullish bitcoin investors. Single stock ETFs have become one of the hottest industry trends over the past year. The most popular have come in two flavors - those that write short-term options on stocks to generate ultra-high yields and those that create leveraged exposure on them. The latter group has produced some of the best performers of 2024. Even though it hasn't even been around for a full year, the Defiance Daily Target 2X Long MSTR ETF ( MSTX ) has returned more than 200% since its inception in August of last year. What's more? It was up more than 700% at one point in November following MicroStrategy's ( MSTR ) big bitcoin-fueled post-election rally. MSTX vs. MSTR (StockCharts) While I'm pretty sure anybody would take these returns, it's important to realize that these products come with a high cost - volatility. Volatility is the enemy of leveraged ETFs because they can amplify the downside more than enhance upside. Even if returns in the underlying are positive, returns in leveraged versions of them can be negative because of this dynamic. Data by YCharts MicroStrategy is already one of the most volatile securities in the financial markets. MSTX doubles that through the use of derivatives contracts. For the record, that makes MSTX about 4 times as volatile as bitcoin and roughly 20 times as volatile as the S&P 500. Instead of focusing only on the 200%+ returns, consider drawdown risk. Since the middle of November, MicroStrategy is down 28% from its all-time high. Over that same time, MSTX has fallen more than 60%. Data by YCharts Clearly, leveraged ETFs, such as MSTX, aren't for the faint of heart, nor are they designed to be long-term buy and hold investments. MSTX could be an interesting option for those betting on a reemergent bitcoin rally (or betting on Michael Saylor), but it's important to understand how these products work before diving in. How MSTX Works MSTX seeks daily leveraged investment results of 200% the daily percentage change in the share price of MicroStrategy Incorporated. It works like most other leveraged ETFs in that it resets its exposure every business day. The fund currently comes with an expense ratio of 1.29%. The short-term reset of exposure means MSTX is better geared for short-term traders than long-term investors, for the reasons mentioned earlier. MSTX vs. MSTU You may already know that MSTX isn't the only leveraged ETF out there based on MicroStrategy. There's also the T-Rex 2X Long MSTR Daily Target ETF ( MSTU ) , which I profiled HERE a couple of months ago. As far as differences between the two ETFs, there are very few. The biggest one is the expense ratio. MSTX charges 1.29%, but MSTU's expense ratio is a modestly lower 1.05%. MSTX debuted on August 14, 2024. MSTU launched shortly thereafter on September 18, 2024. Usually, the fund that launches first tends to capture the larger asset base. Not so in the case of MSTX and MSTU. The latter has just over $1.2 billion in AUM compared to just under $900 million for MSTX. The reason could be the leverage itself that is used. When it debuted, MSTX implemented 1.75x leverage on MicroStrategy. MSTU came out a month later with 2x leverage and became the preference for investors looking to dial up their exposure as much as possible. In late October, MSTX modified its objective to deliver 2x exposure as well. Outside of the difference in expense ratios, there's very little difference between MSTX and MSTU. The Michael Saylor Effect Michael Saylor's official title might be the Executive Chairman of MicroStrategy, but he's really become one of the primary voices in the bitcoin space. The SaylorTracker.com website has become wildly popular as a way of tracking the company's bitcoin holdings (which are currently at more than 446,000). His vocal support of bitcoin and his regular purchases of the cryptocurrency have unquestionably supported sentiment throughout the current cycle. In fact, his activity has garnered a lot of attention lately. Saylor is expected to add to MicroStrategy's bitcoin holdings for the 9th straight week. He may or may not continue at this pace as we progress through 2025, but his influence in the bitcoin space is unquestioned, and it's unlikely to slow down anytime soon. Conclusion If you're bullish on bitcoin or even just a big fan of Michael Saylor, investing in MSTX could be a good way to play it. The 2x leverage exposure to one of the most volatile stocks in the market means investors will need an iron stomach, but there's a lot of potential if there's another leg higher in crypto in the near future. MSTX may come with the higher expense ratio than MSTU, but it also comes with a narrower trading spread. That means more frequent traders in this ETF could find MSTX more advantageous on a total cost basis. Given that leveraged ETFs are only meant for short holding periods, that could actually swing the pendulum in MSTX's favor.
