Direxion’s YINN And YANG To Undergo Index Swap

October 04, 2013

Direxion plans to shift its China bull/bear pair of ETFs to track the FTSE China 25 Index.

Direxion plans in early December to change the benchmark underlying its pair of triple-exposure China bull/bear funds to the FTSE China 25 Index from the BNY Mellon China Select ADR Index. The shift means the fund’s underlying holdings will be more liquid and tilt toward financials rather than Internet companies.

An additional change is that the funds will now include “FTSE” in their titles, renamed as the Direxion Daily FTSE China Bull 3X Shares (YINN) and the Direxion Daily FTSE China Bear 3X Shares (YANG), according to an updated prospectus the company filed with regulators this week.

YINN and YANG’s new index, the FTSE China 25 Index, comprises the 25 most liquid securities on the Hong Kong Stock Exchange and, as noted, is currently weighted toward the financial sector, although the prospectus did say that weighting is subject to change.

The original index for the funds was weighted heavily toward Chinese Internet companies with little exposure to financials, and both funds traded with somewhat wide bid/ask spreads—around 40 basis points. By changing to an index composed of more liquid securities, Direxion might be able to narrow those spreads and produce better-tracking funds in YINN and YANG.

The China-focused bull-and-bear pair is one of Direxion’s many bull/bear pairings designed to produce geared returns on a given market.

Crucially, the funds rebalance daily, and their returns can deviate significantly over time from their underlying indexes, meaning they’re not intended to be long-term holdings and are best suited for sophisticated investors.


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