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Direxion to Close Down Three Leveraged ETFs

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The Direxion Shares ETF Trust has decided to cease trading three of its leveraged products after the closing session on October 20, 2015. The decision, based on the recommendation of the funds' sponsor Rafferty Asset Management, LLC, was taken due to the funds' inability to attract sufficient investment assets.

We believe strong competition in the asset class and pitfalls of investing in leveraged ETFs in this turbulent time with high volatility might have kept investors away from these funds.

Leveraged ETFs are designed to magnify returns of the underlying index. However, these products lose their asset value during a highly volatile market environment, particularly in the long term. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months) (read: Understanding Leveraged ETFs ).

Let's discuss the three products, serving divergent interests, which are about to be closed down (see all Leveraged Equity ETFs here).

Direxion Daily 7-10 Year Treasury Bull 2X ETF ( SYTL )

SYTL tracks the NYSE 7-10 Year Treasury Bond Index, which is a multiple-security fixed income index that aims to track the total returns of the intermediate 7 to 10 year maturity range of the U.S. Treasury bond market. This product provides two times (2x) exposure to the daily performance of the underlying index. The fund has been overlooked by investors as it has garnered only $4.5 million in assets since its inception in July last year. It charges 60 bps in annual fees from investors. However, the product gained 3.8% so far this year.

The closure of this ETF seems unfortunate at a time when investors are flocking toward bond ETFs due to global stock market instability and Fed's reluctance to raise interest rates in the near term, as lower rates push the yields down, boosting the prices for the bonds (read: 5 Bond ETFs Gaining Popularity in October ).

Investors still interested to play the leveraged Treasury bond ETF category could consider the more popular ProShares Ultra 7-10 Year Treasury ( UST ), which provides two times exposure to the Barclays Capital U.S. 7-10 Year Treasury Index. This product has roughly $95 million in AUM and charges 95 bps in fees. The fund returned 4.8% in the year-to-date timeframe.

Direxion Daily Mid Cap Bull 2X ETF ( MDLL )

MDLL follows the S&P Mid Cap 400 Index, measuring the performance of the mid-cap segment of the U.S. equity universe. It seeks daily investment results of 200% of the performance of the benchmark index. The fund is almost neglected gathering a meager $1.5 million in assets since its inception in July last year. It charges 60 bps in fees from investors and was down 15.7% in the year-to-date period.

The closure of this fund doesn't look good either at a time when mid-cap funds are favored by investors due to their potential to move higher in difficult times, especially if political issues or financial instability creep into the picture (read: 3 Mid Cap Growth ETFs to Buy for Q4 ).

Investors still interested in leveraged mid-cap ETFs could consider Daily Mid Cap Bull 3X ETF ( MIDU ) by the same issuer. The fund seeks investment results of 300% of the price performance of the S&P Mid Cap 400 Index. It has $54 million in AUM and charges 95 bps in fees. The fund lost 5.9% so far this year.

Direxion Daily Basic Materials Bull 3X ETF ( MATL )

MATL tracks the Materials Select Sector Index, which includes companies from the chemicals, metals & mining, paper & forest products, containers & packaging, and construction materials industries. It provides three times (3x) exposure to the daily performance of the underlying index. The fund was hardly noticed by investors as it has accumulated only $2.2 million in assets since its launch in June 2011. It charges 95 bps in annual fees from investors.

The basic materials sector has been dragged down by weak agricultural fundamentals, sluggish demand in energy markets and persistent slowdown in China - the world's second largest consumer of raw materials. This might have made the fund an unpopular choice among investors. The product lost 32.5% in the year-to-date timeframe.

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DIR-D 7-10T BL2 (SYTL): ETF Research Reports

PRO-ULT 7-10 YT (UST): ETF Research Reports

DIR-D MC BL2 (MDLL): ETF Research Reports

DIRX-MC BULL 3X (MIDU): ETF Research Reports

DIRX-D BM BL3X (MATL): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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