A pair of new exchange-traded funds (ETFs) are betting that investors will abandon typical index funds to avoid exposure to Elon Musk’s companies. On Wednesday, Subversive ETFs filed to launch two new actively managed ETFs under the tickers QQNE and SPNE. Each fund will exclude companies determined by fund managers to be ‘founded, controlled or led by’ Musk, or which he is ‘primarily associated’ with as a major shareholder or founder. For now, that list includes only SpaceX and Tesla.

The QQNE ETF will provide exposure to the Nasdaq-100 index excluding SpaceX and Tesla, while the SPNE ETF will track the S&P 500 minus Tesla. Under S&P’s rules, SpaceX is not yet eligible for the S&P 500 (it will be after about a year), so SPNE effectively tracks the benchmark without Tesla. The Nasdaq recently approved new rules allowing SpaceX to join the Nasdaq-100 without immediately displacing another constituent, making the QQNE fund feasible.

Who is behind these ETFs?

Subversive ETFs is known for its niche, thematic funds, including ones that track stocks sold by Democratic or Republican members of Congress. The Democratic ETF trades under the ticker ‘NANC’ (after Nancy Pelosi) and the Republican one under ‘GOP’. These funds have attracted some interest but remain small. The new ETFs target investors who are frustrated with Elon Musk’s political activities, regulatory battles, and the volatile performance of Tesla and SpaceX.

Musk’s involvement in politics has been controversial. He led the Department of Government Efficiency (DOGE) until its shutdown on July 4 of last year, and he left the federal government in May 2024. His support for President Donald Trump helped Tesla’s stock surge after the 2024 election, but later hurt sales in Europe and the U.S. as consumer sentiment shifted. Many investors are also concerned about Musk’s unchecked control over SpaceX, which has a valuation near $2 trillion.

Gimmick or legitimate strategy?

Dave Nadig, president and director of research at ETF.com, described the funds as ‘just another gimmick’ and said he is ‘extraordinarily skeptical’. He pointed to the Inverse Jim Cramer ETF, which bet against the stock picks of CNBC personality Jim Cramer; that fund was shut down less than a year after launch due to lack of interest. Nadig noted that Subversive’s other funds, like the congressional-tracking ones, are similarly gimmicky and unlikely to amass significant assets.

Emily Green, who oversees wealth management at Ellevest, believes there are many people who simply do not want to be aligned with Tesla and Musk due to his politics. She said some investors are also uneasy about Musk’s power over SpaceX and its massive valuation. For those investors, direct indexing is one alternative: buying individual stocks to create a personalized index that excludes certain companies. However, direct indexing can be expensive because it requires purchasing tens or hundreds of stocks to closely mirror an index like the S&P 500. ‘You need to have a certain amount of wealth to build that type of account,’ Green noted.

Potential performance implications

Analysts largely see room for SpaceX’s shares to rise, with the average price target among analysts tracked by FactSet sitting 58% above current levels. Tesla’s stock currently trades in line with the average FactSet target, though the most bullish analyst thinks it could climb nearly 50%. Removing those companies from a portfolio may reduce exposure to perceived risks, but it could also create tracking error relative to the full index and cause investors to miss upside if those stocks outperform. Jia Hao, a professor of finance at Babson College, told MarketWatch that ‘Removing those companies may reduce certain perceived risks, but it may also create tracking error and could cause investors to miss upside if those companies outperform.’

Broader context: The rise of thematic ETFs

Thematic ETFs have grown in popularity over the past decade, allowing investors to bet on trends like clean energy, artificial intelligence, or cannabis. Some succeed because they capture a genuine demand from investors who want to align their portfolios with their values. The ‘Ex-Elon’ funds tap into a specific sentiment: dislike or distrust of Elon Musk. Similar funds have been launched to exclude fossil fuels, tobacco, or firearms. The key difference is that Musk is a single individual, which makes these funds more about personal sentiment than broader environmental or social governance (ESG) criteria.

Subversive ETFs is taking a calculated risk. If the funds attract even a modest following, they could generate enough fees to be profitable. However, the failure of the Inverse Jim Cramer ETF shows that novelty alone is not enough. Investors need to see long-term value. The funds also face competition from conventional ESG ETFs that may already avoid Tesla for governance reasons (e.g., concerns about Musk’s behavior, labor practices, or environmental record).

Regulatory and market dynamics

Elon Musk’s relationship with regulators has been rocky. The SEC has investigated his tweets about Tesla’s stock, and the NHTSA has launched probes into Tesla’s Autopilot system. SpaceX, meanwhile, faces scrutiny over satellite launches and environmental impact. For some investors, avoiding these companies is not just a political statement but a risk-management decision. The ETFs could also appeal to those who believe that Musk’s attention is too divided among his many ventures—Tesla, SpaceX, X (formerly Twitter), Neuralink, and The Boring Company—potentially harming each company’s performance.

The launch of the funds comes at a time when Tesla’s sales are under pressure. In the first half of 2025, European EV registrations for Tesla fell 15% year-over-year, and U.S. sales slid 10%. Analysts attribute some of this to a consumer backlash against Musk’s politics. SpaceX, on the other hand, continues to thrive, with a valuation that makes it one of the most valuable private companies in the world. The inclusion of SpaceX in the Nasdaq-100 signals that even index providers recognize its market importance, but it also means that index investors are now forced to hold SpaceX if they want full market exposure.

Alternatives for value-driven investors

For investors who want to avoid Musk but still track the broad market, the new ETFs offer a simple solution. However, they are not cheap. The expense ratios have not been announced yet, but Subversive’s existing funds range from 75 to 99 basis points. That is higher than the average index ETF, which often charges less than 10 basis points. Over time, those fees can eat into returns. Direct indexing also has costs, but for high-net-worth individuals, it may be more tax-efficient because losses can be harvested at the individual stock level.

Another option is to use a separately managed account (SMA) with an exclusion list. Many wealth managers offer this service for clients who want to avoid specific companies. Ellevest, for example, uses direct indexing to let clients prioritize stocks that align with their values, such as strong sustainability ratings. Green said that theoretically, investors could mimic Subversive’s ETFs with direct indexing, but the cost would be prohibitive for most retail investors.

What the future holds

It remains to be seen whether the Ex-Elon ETFs will gain traction. The success will depend on how many investors are willing to pay extra to exclude two high-profile stocks. If Musk’s personal brand becomes even more toxic or if regulatory risks increase, the funds might attract inflows. Conversely, if Musk’s companies outperform, the funds will underperform the full index, leading to redemptions.

Subversive ETFs did not immediately respond to a request for comment on the filing. The funds are expected to launch later this year pending SEC approval. In the meantime, investors can watch to see if similar products appear from other issuers. The trend of personality-based ETFs has been limited so far, but the Ex-Elon funds could either validate the concept or join the list of failed thematic products.

Source:MSN News