New ETF Offers Triple the Return of Gold Miners

Products in the new ETF from Direxion are designed to provide leveraged exposure to specific slices of the market.
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NEW YORK (TheStreet) - A new ETF from Direxion offers investors triple the daily return of gold mining shares and headlines a collection of 36 new exchange traded products. Typical of the firm, the vast majority of the products are designed to provide investors with leveraged exposure to specific slices of the market.

Thirty-four of the 36 new products are 17 bull and bear paired funds. These products will provide investors with the ability to take leveraged bullish or bearish bets on thin slices of the market, commodities and a number of new Asian and emerging countries.

Some of the more interesting new products proposed include the:

Direxion Daily Gold Miners Bull 3X Shares and the Direxion Daily Gold Miners Bear 3X Shares;

Direxion Natural Gas Related Bull 3X Shares and the Direxion Natural Gas Related Bear 3X Shares; and the

Direxion Daily South Korea Bull 3X Shares and the Direxion Daily South Korea Bear 3X Shares.

Given the fact that many of these proposed funds concentrate on already volatile subsectors such as gold miners, daily movements will likely be massive and could cause serious damage to portfolios. As always, I advise only the most sophisticated investors to try their luck with them.

Direxion's decision to unveil plans for these new products comes at a trying time for the leveraged ETF industry. Over the past few weeks, increased

oversight

from the Securities and Exchange Commission has resulted in a halt to the creation of new derivative-backed products. This especially hinders companies like Direxion, whose growing collection of leveraged products depend on derivatives to magnify returns.

Given this roadblock, I have examined ways that ETF providers can avoid regulatory scrutiny. Some avenues I have looked at include alternative

international

products and small-cap

sector

products. Instruments that track these particular market slices typically command high fees while avoiding regulatory restrictions.

Judging by the company's filing, Direxion does not appear ready to completely give up its leveraged ETF production line in light of the SEC's crackdown. However, the company does appear to be willing to compromise. Among the slew of proposed leveraged products presented within the firm's filing are two additional products: the

Direxion Auto Shares ETF

and the

Direxion Airline Shares ETF

, which unlike other ETFs carrying the Direxion name, will not use leverage.

Although both products have a good chance of catching on, it will be particularly interesting to see what type of following the

Direxion Auto Shares ETF

will gather. The striking resurgence of the U.S. automotive industry has been one of the biggest stories of the economic recovery. However, despite its strength, fund investors looking for exposure to the auto industry have had to rely solely on the

Fidelity Select Automotive Fund

(FSAVX) - Get Report

.

Rather than tracking car companies like

Ford

(F) - Get Report

, FSAVX tracks auto suppliers like

Johnson Controls

(JCI) - Get Report

and

BorgWarner

(BWA) - Get Report

. Over the past year, this strategy has paid off with the fund climbing nearly 130%. Direxion's auto fund is expected to play the auto industry in a similar fashion, making it an exciting fund to watch.

Like the auto fund, the

Direxion Airline Shares ETF

is also expected to track a strong collection of suppliers. This fund's biggest competitors will be the

Claymore/Arca Airline ETF

(FAA)

and broader ETFs such as the

iShares Dow Jones Aerospace and Defense Index Fund

(ITA) - Get Report

and the

PowerShares Aerospace and Defense Portfolio

(PPA) - Get Report

.

Direxion's decision to test the unlevered waters may highlight a shift in the ETF realm. As long as providers continue to release risky derivative-backed products, regulators will continue to breathe down their necks. Diversifying away from these controversial products may be the best way to avoid these headaches.

At the time of publication, Dion owned FSAVX.

Don Dion is president and founder of

Dion Money Management

, 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.