The triple-leveraged fund offerings from Direxion topped both the ETF winners and losers for second-quarter 2009. According to a recent Barron's report, five out of the top 16 fund gainers in the second quarter belong to the Direxion family, including a more than 100% gain in its Emerging Market Bull 3X ETF ( EDC).

The group's Developed Markets Bull 3X ETF ( DZK) rose 80.36% and its Tech Bull 3X ( TYH) rose 65.03%.

Direxion's mutual funds also made the rankings for second-quarter gainers: Latin America Bull 2X rose 76.01% while China Bull 2X rose 74.61%.

Direxion funds also appear frequently in the minus column, however, heading the second-quarter losers with a 77.24% drop in its Financial Bear 3X ETF ( FAZ) and a 65.26% drop in its Emerging Market Bear 3X Fund ( EDZ).

Other ETFs that fell in the top 16 losers included Direxion's Developed Market Bear 3X ( DPK), Small Cap Bear 3X ( TZA), Midcap Bear 3X ( MWN) and Tech Bear 3X ( TYP). Two Direxion mutual funds also made the list of losers: Emerging Market Bear 2X and Small Cap Bear 2.5X.

Both the Daily Financial Bull 3X ( FAS) and Daily Financial Bear 3X ( FAZ), which fell dramatically in 2009, were involved in a reverse split last Wednesday. The split, designed to lower trading costs in the low-cost high-volume ETFs, will at least temporarily restore the volatile funds to a higher share volume. An increase in volatility, however, could lead to erosion once again and investors could find themselves on the wrong end of the loser/gainer spectrum.

In a recent interview Direxion Vice President of Trading Paul Brigandi tellingly noted that stocks rallied "just because people thought the recession was easing." Brigandi claims that the market is not in a "show-me phase" and that "people were just happy to see the numbers not as bad as expected." Brigandi's comment about speculation illustrates how the funds were so popular with traders willing to bet on market movement.

Direxion ETFs are designed for professionals and perhaps the most acute concern about the funds is that the attention drawn to them by trading volume will attract the wrong kind of investors. FINRA has expressed concern in recent months about the aim of leveraged funds and Direxion has responded to worries with direct language on their website and in their advertising.

A recent newspaper ad from Direxion notes that "there is no guarantee that the funds will achieve their objective." The ad adds that: "the ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investments."

How can Direxion and other ETF issuers truly protect investors from complicated products that are magnified by leverage? Take them out of the neat little "ETF" package and don't hide them under a similar title (ETNs, anyone?). How about ODS (one day stand)?

ETFs were designed as low-fee, transparent investments. Let's call leveraged funds by another name.
At the time of publication, Dion had no positions in the stocks mentioned.

Don Dion is the 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.

Dion is also 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.