By Patrick Watson
Expansion of the leveraged ETF menu continued this week with Wednesday's (7/14/2010) launch by Direxion of long and short 2x sector ETFs for the Retail and Natural Gas sectors. Direxion now offers a total of 38 leveraged ETFs, according to the firm’s press release (pdf).
The new funds are:
- Direxion Daily Retail Bull 2x Shares (NYSEARCA:RETL) (overview page)
- Direxion Daily Retail Bear 2x Shares (NYSE:RETS) (overview page)
- Direxion Daily Natural Gas Related Bull 2x Shares (FCGL) (overview page)
- Direxion Daily Natural Gas Related Bear 2x Shares (FCGS) (overview page)
RETL and RETS are benchmarked to the Russell 1000 RGS Retail Index, which consists of the Russell 1000 constituents from the retailing sector. Top holdings include Wal-mart (NYSE:WMT), Target (NYSE:TGT), Home Depot (NYSE:HD), Lowes (NYSE:LOW), Amazon.com (NASDAQ:AMZN) and about 40 others.
FCGL and FCGS are benchmarked to the ISE-REVERE Natural Gas Index. This is not an index of natural gas itself, but of companies involved in the natural gas business. The index consists of 30 stocks, mostly based in North America. The First Trust ISE-Revere Natural Gas Index ETF (NYSEARCA:FCG) is an unleveraged ETF tracking the same index. The June 2010 overview report (pdf) from the ISE says the index follows an equal-weighting methodology, which would seem to suggest the stocks should all have a weighting of around 3.3%. The constituent list shows only 29 holdings and ExxonMobil (NYSE:XOM) had a 6.8% allocation as of June 30. XOM seems to get a double share for some reason.
As was the case with Direxion’s BRIC and India fund pairs launched back in March, today’s batch offers only 2x leverage rather than 3x like most of the Direxion ETFs. While I haven’t heard any official explanation from the company, it looks like Direxion is moving toward lower leverage in its product line. This could be due to operational constraints, liability concerns, or an analysis that 2x offerings actually generate more profit for the firm. We also know that the SEC is giving new leveraged products some extra scrutiny this year, which may play a part.
Just like most other leveraged ETFs, the new Direxion Shares have a daily leverage reset, meaning that results over periods of more than one day can vary dramatically from the benchmark. These funds are best used for short-term trading rather than as long-term investments.
Disclosure covering writer, editor, and publisher: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.