Direxion unveils three long-term buy-and-hold ETF strategies

Feb 5th, 2020 | By | Category: Alternatives / Multi-Asset

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Direxion has unveiled three new ETFs on NYSE Arca targeting strategic long-term investment themes.

Dave Mazza, Managing Director and Head of Product of Direxion

Dave Mazza, Managing Director and Head of Product at Direxion.

Two of the three new funds – the Direxion MSCI USA ESG – Leaders vs. Laggards ETF (ESNG US) and the Direxion S&P 500 High Minus Low Quality ETF (QMJ US) – utilize a long/short approach to establish more pronounced exposure to ESG and quality factor risk premia within the US equity market.

The third fund is the Direxion Flight to Safety Strategy ETF (FLYT US) which invests in a diversified range of safe-haven assets, catering to investors looking to add ballast to their portfolios.

The funds mark an evolution of approach for Direxion which is best-known for its suite of inverse and leveraged ETFs offering professional investors the tools to express high-conviction, short-term tactical trades.

According to Direxion, the firm plans to build on this approach by rolling out more long-term, strategic ETFs throughout 2020.

Dave Mazza, Managing Director and Head of Product at Direxion, commented, “We’re on a mission to accelerate the number and variety of strategies we offer that can benefit long-term investors. These strategies allow a broader audience to benefit from our expertise in delivering smart, precise exposure to distinct and strategically focused investment opportunities.”

ESG factor

The Direxion MSCI USA ESG – Leaders vs. Laggards ETF tracks the MSCI USA ESG Universal Top – Bottom 150/50 Return Spread Index which consists of a 150% long exposure to the MSCI USA ESG Universal Top 100 5% Issuer Capped Index and a 50% short exposure to the MSCI USA ESG Universal Bottom 100 5% Issuer Capped Index.

The long index consists of the 100 stocks from the parent MSCI USA Index, a broad reference for large- and mid-caps listed in the US, that have the highest scores according to MSCI’s ESG metrics. MSCI’s methodology considers not only the robustness of a firm’s ESG profile (how well it manages key ESG issues relative to industry peers) but also the trend in improving that profile.

Constituents are weighted according to their ESG scores subject to a single issuer cap of 5% and whilst also maintaining sector neutrality relative to the parent index.

The short index consists of the 100 stocks from the parent index with the lowest ESG scores. Constituents are weighted according to the inverse of their ESG scores subject to a single issuer cap of 5% and while maintaining sector neutrality relative to the parent index.

The fund comes with an expense ratio of 0.42%.

Quality factor

Similarly, the Direxion S&P 500 High Minus Low Quality ETF tracks the S&P 500 150/50 Quality 0.30% Decrement Index which consists of a 150% long exposure to the S&P 500 Quality Index and a 50% short exposure to the S&P 500 Quality – Lowest Quintile Index.

The long index consists of the 100 stocks from the parent S&P 500 Index that have the highest exposure to the quality factor based on three metrics: return on equity, leverage ratio, and accruals ratio. Constituents are weighted using a combination of their market capitalization and their quality scores subject to security and sector caps of 5% and 40%, respectively.

The short index consists of the 100 stocks from the S&P 500 with the lowest quality scores. Constituents are weighted using a combination of their market capitalization and the inverse of their quality scores subject to security and sector caps of 5% and 40%, respectively.

The fund comes with an expense ratio of 0.37%.

Flight to safety

Finally, the Direxion Flight to Safety Strategy ETF tracks the Solactive Flight to Safety Index which combines exposure to long-term US Treasuries (+ 20 years), US-listed utility stocks, and physical gold. The weight of each component is based on the inverse of its volatility over the past five years, while exposure to gold is limited to 22.5%. The index weights are currently Treasuries (44.9%), utility stocks (32.7%), and gold (22.4%).

The fund comes with an expense ratio of 0.42%.

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