Direxion offers up Brazil and South Korea funds through the lens of triple leveraged long exposure.
Direxion, the Newton, Mass.-based firm known for its geared ETFs, today is launching two triple-leveraged single-country ETFs—one focused on Brazil, the other on South Korea—that are part of an extensive lineup the firm first put in registration in 2010.
The Direxion Daily Brazil Bull 3X Shares (NYSEArca: BRZU) will serve up three times the daily performance of the MSCI Brazil Index, a free-float-adjusted market capitalization weighted index comprising primarily Brazil’s large and midcap names—the same benchmark anchoring the $7.5 billion iShares MSCI Brazil Index Fund (NYSEArca: EWZ).
BRZU will have an annual expense ratio of 1 percent, or $100 for each $10,000 invested, which includes a 0.75 percent management fee, according to the most recent prospectus.
Similarly, the Direxion Daily South Korea Bull 3X Shares (NYSEArca: KORU) will serve up triple exposure to the daily performance of the MSCI Korea Index, the same benchmark that the $2.65 billion iShares MSCI South Korea Index Fund (NYSEArca: EWY) tracks. KORU, too, will have a net annual expense ratio of 1 percent a year.
At the time of Direxion’s massive 2010 filing that detailed plans for some 36 funds, including 17 bull-and-bear triple-exposure pairs that rebalance daily and are focused largely on Asian and emerging market countries, commodities and energy, the company said it would be rolling out the strategies when they thought the time was right for the funds.
Interestingly, Brazil ETFs have struggled in recent months as the country’s GDP growth has failed to live up to the promise of outsized emerging-market performance relative to developed-world markets.
The big iShares fund, EWZ, has lost about 2 percent of its value year-to-date as investors yanked out more than $1.61 billion from the fund. The ETF’s losses come in at 13.4 percent in the past year.
South Korea, meanwhile, has been in the center of a debate regarding whether the country belongs in the emerging markets basket or among developed economies. Last June, MSCI decided to keep South Korea labeled as emerging, but FTSE has long held the country among its developed markets.
Either way, since the beginning of the year, EWY has slipped 12.4 percent despite net asset inflows of $53.5 million, trading at its lowest level in 18 months.
The new ETFs will join similarly designed Direxion products, such as the $75 million Direxion Daily China Bull 3X Shares (NYSEArca: YINN), which first came to market in December 2009, and the $17 million Direxion Daily Russia Bull 3X Shares (NYSEArca: RUSL), launched in May 2011.
All of these leveraged ETFs have matching bear funds, and BRZU and KORU fit that bill as well, though their triple-inverse counterparts are currently sitting in the registration pipeline.
In the latest prospectus, Direxion laid out some of the risks of investing in leveraged and inverse funds.
“The fund is different and much riskier than most exchange-traded funds,” Direxion warned in its prospectus about each of the funds, as it pointed to the effect of daily rebalancing and the compounding of daily returns overtime.
“The fund will lose money if the index performance is flat over time, and as a result of daily rebalancing, the index’s volatility and the effects of compounding, it is even possible that the fund will lose money over time while the index’s performance increases,” the firm said in the filing.
More 3x Country Funds Planned
Separately, Direxion filed regulatory paperwork detailing eight additional triple-leveraged single-country funds—four bull-and-bear pairs—focused on Chile, Hong Kong, Japan and Mexico. They include:
- The Direxion Daily Chile Bull 3x Shares and the Direxion Daily Chile Bear 3x Shares are each linked to the daily performance of the MSCI Chile IMI 25/50 Index, which comprises roughly 99 percent of Chile’s free-float-adjusted market capitalization. The funds each cost a net annual operating fee of 1.1 percent, which includes 0.75 percent in management fees.
- The Direxion Daily Hong Kong Bull 3x Shares and the Direxion Daily Hong Kong Bear 3x Shares are linked to the MSCI Hong Kong Index. They each cost 1.08 percent a year in total fees, including 0.75 percent in management costs.
- The Direxion Daily Japan Bull 3x Shares and the Direxion Daily Japan Bear 3x Shares are each tied to the MSCI Japan Index, which measures the performance of Japan’s large and midcap equities comprising about 85 percent of the total market’s free-float-adjusted capitalization, and should cost 1.08 percent in annual fees.
- The Direxion Daily Mexico Bull 3x Shares and the Direxion Daily Mexico Bear 3x Shares are each linked to the MSCI Mexico IMI 25/50 Index—a broad benchmark comprising 99 percent of Mexico’s free-float-adjusted market capitalization, and one that is recently heavily tilted toward consumer staples. The ETFs should each cost 1.10 percent in total annual fees.
Direxion is the 15th-largest ETF provider in the U.S. today in terms of assets, with some $5.65 billion of assets under management, according to data compiled by IndexUniverse.