Direxion Taking Aim At 130/30 ETFs

By
Murray Coleman
July 29, 2009
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Direxion moves ahead with plans to come out with 130/30 ETF. 

 

On the heels of the market's first 130/30 exchanged-traded fund, another leveraged fund sponsor is moving forward with plans to offer a similar type of strategy.

In a new filing amending an old request that's more general in nature, Direxion Shares is requesting regulatory approval to launch its own 130/30 ETF.

The first such 130/30 ETF was the ProShares Credit Suisse 130/30 ETF (NYSEArca: CSM). It launched on July 14. As its name implies, the portfolio tries to outperform traditional long-only funds by using a combination of leverage and short-selling.

The 130/30 strategy is used by many active managers, both on the institutional as well as retail fund level. It involves pairing 130% exposure to stocks a portfolio manager thinks will outperform the market with 30% short exposure to stocks a portfolio manager thinks will trail the market.

The end portfolio retains 100% net exposure to the market, but aims to deliver alpha through smart stock-picking.

While ProShares gained first-to-market status for ETFs, there's actually another exchange-traded product that competes in the same market. The First Trust Enhanced 130/30 Index (NYSEArca: JFT) came out in May and shares a similar cost structure with the newer CSM.

Late last year, Direxion included 130/30 ETFs in a long list of possible new ETFs it would like to bring to market. (The original filing actually has a fairly extensive explanation of how the 130/30 process works. Interestingly, it also has a reference to ETFs that would provide up to 400% exposure, both inverse and leveraged, to underlying indexes. The most juice used up to this point has been 3x, or 300%, of a fund's benchmark.)

The amended filing, dated July 20, adds some more detail about swaps and other types of securities that can be used in 130/30 portfolios. It also has a bit more clarity about any such funds' creation and redemption process.

You can read the original filing here and the latest here.

 

ETF DAILY DATA

International equity funds like 'HEDJ' and 'EFAV' added assets on Thursday, Jan. 29, as total U.S.-listed ETF assets rose above $2 trillion.

'SPY,' 'XLF,' 'XLI' and 'BIL' paced SSgA's issuer-leading outflows on Thursday Jan. 29, as total U.S.-listed ETF assets rose above $2 trillion.

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