The firm will be a late entrant to the MLP ETF market, but with a fund that beats most competitors on price.
Direxion Shares, the New York-based fund firm known mostly for its leveraged and inverse products, filed regulatory paperwork to market a fund focused on the already-crowded master limited partnership ETF space, though the new security will be priced lower than most competitors.
The Direxion Zacks High Income MLP Shares will typically invest at least 80 percent of its net assets in the securities that comprise the Zacks MLP Index and/or investments that have economic characteristics that are substantially identical to the economic characteristics of the securities that comprise the index.
The ETF will also be able to invest up to 20 percent of its assets in financial instruments in order to gain exposure to the component securities of the index.
Direxion noted in the prospectus that investments that have economic characteristics substantially identical to index securities are limited to American depositary receipts, European depositary receipts and global depositary receipts.
Exchange-traded products focused on MLPs have been all the rage the past few years, as investors look for creative ways to get around the paltry leads that have prevailed since the market crashed in September 2008 in the wake of the Lehman Brothers bankruptcy.
Most products targeting the space, including the $6.55 billion Alerian MLP (NYSEArca: AMLP) that’s sponsored by ALPs, and the $5.7 billion JPMorgan Alerian MLP ETN (NYSEArca: AMJ), cost 0.85 percent a year, or $85 for each $10,000 invested.
But the new Direxion fund, which is based on a different index than the two big securities, will have an annual expense ratio of 0.65 percent after a fee waiver, making it the second-cheapest MLP ETF on the market.
Bragging rights for the cheapest of all MLP products go to the Global X MLP ETF (NYSEArca: MLPA), which has an annual expense ratio of 0.45 percent. MLPA has gathered $64 million since its launch in April 2012.
Direxion hasn’t yet determined what ticker its proposed MLP ETF will have, though it did say in the prospectus the ETF would have its primary listing on Arca, the New York Stock Exchange’s electronic trading platform.