Direxion Funds, which is best known for triple-leveraged exchange-traded products like
Direxion Daily Financial Bull 3X Shares
Direxion Daily Financial Bear 3X
, has added to its lineup.
Direxion Daily China Bull 3X Shares
Direxion Daily China Bear 3X Shares
Direxion Daily Latin America Bull 3X Shares
Direxion Daily Latin America Bear 3X Shares
triple-leveraged (either bullish or bearish, depending on the fund) exposure to the popular emerging-market fund universe. The CZM and CZI will track the BNY China Select ADR Index and the LBJ and LHB will track the S&P Latin America 40 Index.
This is not the first time that the company has taken a stab at the emerging markets. Currently, the
Daily Emerging Markets Bull 3X Shares
Daily Emerging Markets Bear 3X Shares
allow investors leveraged exposure to the broad MSCI Emerging Market Index. However, the new instruments will be the firm's most concentrated to date, with the China tools being its first single nation-focused international funds.
The launch of the four new triple-leveraged funds capitalizes on the influx of assets into emerging markets, as investors search for ever-larger yields and returns.
Their launch also comes on the heels of Direxion's filings for triple
and semiconductor funds, which will track the S&P 500 and Philadelphia Stock Exchange Semiconductor Sector Index and will carry 0.75% expense ratios.
While Direxion will not be the first ETF issuer to traverse this terrain, the leverage the company proposes to offer in these areas is unprecedented. Currently, the
ProShares UltraShort S&P500
ProShares Ultra S&P 500
are the only available instruments that provide investors with double-leveraged exposure to the S&P 500. The new Direxion funds will up the ante with triple leverage.
The release of these new funds will test the memory of investors as well as the warnings issued by Financial Industry Regulatory Authority (FINRA) earlier this year.
The new influx of triple-leveraged funds call to mind the risks associated with leveraged offerings and the persistence of FINRA's
about leveraged offerings.
The new triple-leveraged S&P 500 funds, in particular, call to mind the infamous case of
Direxion's Daily Financial Bull 3X
Daily Financial Bear 3X
funds, which had to execute a
earlier this year due to price erosion.
Since the triple-leveraged funds offered by Direxion track their objectives on a daily basis, they can compound volatility, and that can wear the funds down over time. It's important for
before they get into these funds.
While leveraged ETFs can be powerful tools for sophisticated traders looking to hedge their intraday exposure, they can be
in the hands of investors who don't understand their structure.
Several brokerage firms stopped offering leveraged funds to clients during the summer of 2009, saying the funds were inappropriate for long-term investors. More recently, FINRA
margin requirements for owners of leveraged ETF funds.
Recent data from the National Stock Exchange suggests that generally the investors who are using leveraged funds are the short-term traders that the funds are targeted at. Notational trading volume, a measure of how often a fund is bought and sold, suggests that leveraged funds are generally turned over on a daily basis or more frequently.
We hope that will be the case with the new Direxion triple-leveraged funds. Investors with long-term objectives should look elsewhere.
At the time of publication, Dion had no positions in securities mentioned.
Don Dion is president and founder of
, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.