Direxion Moves From 2X to 3x Leveraged ETFs

November 22, 2011

 

Direxion, the Newton-Mass.-based purveyor of leveraged and inverse funds, is shifting leverage on all 10 of its existing double-exposure ETFs to triple exposure, effective Dec. 1. The move is aimed at aligning the funds with the company’s reputation as the premier sponsor of triple-leveraged ETFs.

The company’s plan to make all of its leveraged ETFs triple-exposure funds is a response to market demand for leveraged products with more, not less, leverage, according to Andy O’Rourke, Direxion’s director of marketing.

“The people who use these products are active traders who are trading largely on momentum, or using other strategies that are highly researched,” O’Rourke said in a telephone interview.

“Essentially what we have is a group of traders who have a lot of conviction as to which way they want to trade a given sector or asset class, and so with that amount of conviction, they actually prefer the higher leverage point,” he added.

Many of the traders who are invested in Direxion’s leverage products are high-frequency trading groups that trade all day, often buying and selling in a matter of minutes. O’Rourke said that some traders might consider holding leveraged funds for a week, but generally not for longer periods.

Leveraged ETFs contain the potential for huge rewards but the losses also can be substantial, especially in the case of volatile markets. Most investors don’t have the stomach or the expertise for the roller-coaster rides that these funds take.

A 1 percent increase in a bull market will be a 3 percent increase in a leveraged fund, minus fees and expenses. However, the reverse is true in a bear market. A 1 percent decrease will cause a 3 percent decrease for the fund, and over time, leveraged funds that rebalance daily can deviate significantly from the returns of their indexes, according to O’Rourke.

“You always need to watch them [leveraged ETFs] very closely, because your exposure levels can change because of how they reset every day,” O’Rourke said.

The 10 funds, five bull-and-bear pairs, and their current and future names are:

  • Daily BRIC Bull 2X Shares ETF (NYSEArca: BRIL) will become Daily BRIC Bull 3X Shares
  • Daily BRIC Bear 2X Shares (NYSEArca: BRIS) will become Daily BRIC Bear 3X Shares
  • Daily India Bull 2X Shares (NYSEArca: INDL) will become Daily India Bull 3X Shares
  • Daily India Bear 2X Shares (NYSEArca: INDZ) will become Daily India Bear 3X Shares
  • Daily Gold Miners Bull 2X Shares (NYSEArca: NUGT) will become Daily Gold Miners Bull 3X Shares
  • Daily Gold Miners Bear 2X Shares (NYSEArca: DUST) will become Daily Gold Miners Bear 3X Shares
  • Daily Natural Gas Related Bull 2X Shares (NYSEArca: GASL) will become Daily Natural Gas Related Bull 3X Shares
  • Daily Natural Gas Related Bear 2X Shares (NYSEArca: GASX) will become Daily Natural Gas Related Bear 3X Shares
  • Daily Retail Bull 2X Shares (NYSEArca: RETL) will become Daily Retail Bull 3X Shares
  • Daily Retail Bear 2X Shares (NYSEArca: RETS) will become Daily Retail Bear 3X Shares

 

The funds' tickers will all stay the same, O’Rourke said.

 

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