Alex Ulam

Features and News

Direxion Reverse-Splits 6 ETFs


Direxion, the Newton, Mass.-based money manager known for its triple-exposure ETFs, completed reverse stock splits effective today on six of the company’s funds, according to the New York Stock Exchange.

The Big Board, reaffirming what Direxion announced last month, said five funds will be one-for-five splits. The affected securities are:

  • Direxion Daily Financial Bull 3X Shares (NYSEArca: FAS)
  • Direxion Daily Emerging Markets Bull 3X Shares (NYSEArca: EDC)
  • Direxion Daily 20+Year Treasury (NYSEArca: TMV)
  • Direxion Daily Real Estate Bear 3X Shares (NYSEArca: DRV)
  • Direxion Daily Latin America Bull 3X Shares (NYSEArca: LBJ)

 

The sixth will be a one-for-three reverse split on the Direxion Daily Russia Bull 3X Shares (NYSEArca: RUSL).

Direxion said last month when it first announced the reverse splits that the total market value of each ETF won’t be affected by the actions. However, fractional shares resulting from the reverse splits will be redeemed.

The funds’ primary listing is on Arca, the NYSE’s electronic trading platform. The NYSE made public the reverse splits in a Nov. 9 e-mail.

 

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Direxion Plans More Smart Beta ETFs

Direxion, the Newton-Mass based firm known for its triple-exposure leveraged and inverse funds, filed regulatory paperwork with the Securities and Exchange Commission last week to bring to market three intelligent beta funds, adding to its plans to market smart beta ETFs.

The three new intelligent beta funds are in addition to 11 such funds that Direxion registered with the SEC on Nov. 2. The three new funds, which focus on small-, large- and broad-market cap stocks, follow “enhanced-return indexes” that seek to outperform more traditional indexes that don’t utilize smart beta methodologies.

According to its filing, Direxion’s investment strategy involves examining the historical relationships between corporate factors and the performance of the related stocks across all eligible securities. After identifying winning correlations, the data is then used to identify and select stocks for the underlying indexes.

The new funds and their expense ratios follow. The three funds have a total net expense ratio of 0.85 percent, which includes 0.04 percent expense waiver/reimbursement through Dec. 1, 2012.

  • Quantum-ISE Enhanced Broad Market Shares
  • Quantum-ISE Enhanced Large-Cap Shares
  • Quantum-ISE Enhanced Small-Cap Shares

The filing didn’t specify tickers.

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Direxion Puts 8 3x Fund Into Pipeline

 

Direxion Shares, the ETF provider best known for its triple-exposure leveraged and inverse fund offerings, filed paperwork with the U.S. Securities and Exchange Commission to bring to market four bull-and-bear pairs of triple-exposure equity ETFs focused on the industrial sectors, gold and silver miners and shares of Turkey-based companies.

The eight funds, which each have annual expense ratios of 0.95 percent, are:

  • Direxion Daily Turkey Bull 3X Shares
  • Direxion Daily Turkey Bear 3X Shares
  • Direxion Daily Industrial Bull 3X Shares
  • Direxion Daily Industrial Bear 3X Shares
  • Direxion Daily Junior Gold Miners Index Bull 3X Shares
  • Direxion Daily Junior Gold Miners Index Bear 3X Shares
  • Direxion Daily Silver Miners Bull 3X Shares
  • Direxion Daily Silver Miners Bear 3X Shares

 

In the filing, Direxion is plain about the risks of investing in leveraged funds that rebalance daily. Returns in such funds can deviate significantly from those of their underlying indexes. For example, at times of elevated volatility, investors could lose all their investment—even if the sum-total effect of multiple sharp changes in price leave a given index unchanged over time.

Indeed, Direxion states at the top of their prospectus that unlike most ETFs, these funds are intended to be used as short-term trading vehicles and that “they are not appropriate for investors who do not intend to actively monitor and manage their portfolios.”

However, for attentive investors with an appetite for risk, these leveraged ETFs offer the potential for large short-term payouts. The funds seek three times the daily return of a given index or its inverse.

The principal investment strategies of the eight funds involve investing at least 80 percent of a fund’s net assets in the securities that comprise its respective index.

The funds can use financial instruments such as futures contracts, options on securities, short positions and short-term debt instruments to achieve their investment strategies.

 

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iShares Plans Emerging Markets Energy ETF

 

iShares, the world’s largest provider of exchange-traded funds, filed paperwork with the U.S. Securities and Exchange Commission to market a fund targeting the emerging markets energy sector, an area of the ETF universe that currently has only one contender.

The iShares MSCI Emerging Markets Energy Sector Capped Index Fund goes into the product pipeline at a time when energy demand has been booming, largely because of high growth rates in emerging market countries such as China and India.

Only two funds track at the energy sector in the emerging markets, according to IndexUniverse’s ETF Classification System. Those are the $15.3 million EGShares Energy GEMS (NYSEArca: OGEM) and the even-smaller Global X China Energy ETF (NYSEArca: CHIE), which has $4 million in assets, according to data compiled by IndexUniverse.

The new iShares fund would deliver pinpoint accuracy to a pocket of the investment universe iShares already targets via its $34.16 billion MSCI Emerging Markets Index Fund (NYSEArca: EEM), which has about 14 percent of its holdings in energy companies.

The new Emerging Markets Energy Sector Capped Index Fund will be based on a MSCI index of oil, gas and energy services companies located in 15 different countries -- 14 if China and Hong Kong are counted as one. Those countries mentioned in the filing are: Brazil, China, Colombia, Hong Kong, Hungary, India, Indonesia, Malaysia, Poland, Russia, South Africa, South Korea, Taiwan, Thailand and Turkey.

The ETF will use a representative indexing strategy, which means it won’t own all the securities in the underlying index.

iShares said in the filing that at least 80 percent of the fund’s assets will be invested in the securities of the underlying MSCI index or in depository receipts that represent the index.

The fund will also have a capping methodology that assures a degree of diversification in an asset class where returns among different companies can diverge widely.

Specifically, the fund will limit the weight of a single component to a maximum of 25 percent, and will also limit companies with weights of more than 5 percent to an aggregate of less than half the whole fund’s size.

 

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