Direxion adds inverse gold and leveraged equities ETFs to product line-up

Aug 2nd, 2016 | By | Category: Commodities

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Inverse and leveraged exchange-traded fund provider Direxion has launched two new ETFs offering 2x leveraged exposure to European financials and single inverse exposure to gold miners.

Direxion launch two new inverse leveraged ETFs Europe gold miners

Sylvia Jablonski, Managing Director at Direxion

Leveraged ETFs magnify exposure to an underlying index, while inverse ETFs profit from a decline in an underlying index. The funds use derivatives to obtain their respective exposures and are required to re-balance their positions on a daily basis.

The Direxion Daily European Financials Bull 2X Shares (NYSE Arca: EUFL) provides 200% of the daily performance of the MSCI Europe Financials Index, while the Direxion Daily Gold Miners Index Bear 1X Shares (NYSE Arca: MELT) provides 100% of the inverse of the daily performance of the NYSE Arca Gold Miners Index.

The leveraged financials ETF may appeal to investors seeking to profit from the heightened volatility surrounding Europe’s financial sector following Britain’s decision to leave the European Union. By offering double the daily performance of the MSCI Europe Financials Index, investors receive leveraged exposure to a broad market cap-weighted representation of large- and mid-cap companies across developed market countries in Europe that have been designated as operating within the financials sector according to the Global Industry Classification Standards(GICS).

As of 30 June 2016 the index consisted of 98 constituents with an average market capitalization of $16.2bn. The largest country exposures are to the UK (31.1%), France (13.1%), Switzerland (12.1%), Germany (11.8%) and Spain (8.9%) while the largest constituents in the index are HSBC (8.9%), Allianz (4.5%), Banco Santander (4.2%) and BNP Paribas (3.5%).

Year-to-date (29 July 2016) the index is down 17.9%.

Sylvia Jablonski, Managing Director at Direxion, said: “We’ve seen recent instability in European markets, with the post-Brexit effect yet to subside as political and economic uncertainties remain. The launch of the European Financials leveraged ETF is timely, as market reaction to the EU situation presents the chance for bullish traders to magnify their short-term perspective.”

Investors wishing to gain unleveraged bullish exposure to the index may consider the iShares MSCI Europe Financials ETF (Nasdaq: EUFN) which has over $440m in assets under management (AUM) and a total expense ratio (TER) of 0.48%. European investors may also look at the SPDR MSCI Europe Financials UCITS ETF (LSE: FNCL) with over $280m in AUM and a TER of 0.30%.

Direxion’s other ETF launch seeks to profit from declining values of the equities of companies within the NYSE Arca Gold Miners Index. The index is comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in the mining for gold and silver. As of 30 June 2016 the companies included in the index have an average market capitalization of more than $4.6bn.

The largest country weightings within the index are to Canada (55.4%), the US (15.8%), Australia (11.5%), and South Africa (7.8%). The largest constituents in the index include Barrick Gold (11.2%), Newmont Mining (9.3%), Goldcorp (7.1%), Franco-Nevada (6.1%) and Newcrest Mining (5.9%).

Year-to-date (29 July 2016) the index is up 116.2%, experiencing magnified gains compared to the spot price of gold which is up 27.3% over the same period.

Direxion also offers daily triple leveraged bull exposure as well as daily triple leveraged bear exposure to the NYSE Arca Gold Miners Index through the Direxion Daily Gold Miners Index Bull 3x Shares (NYSE Arca: NUGT) and the Direxion Daily Gold Miners Index Bear 3x Shares (NYSE Arca: DUST) respectively. The total expense ratio (TER) of each fund is 0.95%.

Investors looking for unleveraged bull exposure to the NYSE Arca Gold Miners Index may consider the Van Eck Vectors Gold Miners ETF (NYSE Arca: GDX) which has $10.7bn in assets under management (AUM) and has a TER of 0.52%. The fund recently celebrated the ten year anniversary of its launch (see “VanEck’s Gold Miners ETF celebrates 10 years”). There is also a UCITS-compliant version of the fund trading on the London Stock Exchange with $150m in AUM and a TER of 0.53%.

“Our new Gold Miners bear ETF will complement the existing suite of ETFs tracking that space, to give traders another option for taking advantage of short-term opportunities,” added Jablonski.

The newly launched funds have reduced TERs due to contractual caps on management fees in place until September 2017. The TER of the Direxion Daily European Financials Bull 2X Shares ETF is 0.80% while its gross expense ratio is 0.95%, and the TER of the Direxion Daily Gold Miners Index Bear 1X Shares ETF is 0.45% while its gross expense ratio is 0.58%.

Inverse and leveraged ETFs are intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions. While these funds may provide an efficient means for sophisticated traders to obtain tactical exposures, they are generally considered unsuitable for retail investors who may not fully understand the risks involved, such as the potential for considerable losses in volatile but range bound markets if the fund is held for an extended period.

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