Direxion, the Boston-based ETF issuer best known for its suite of 3x and -3x products, continues to expand its platform to include non-leveraged ETFs. The firm has already rolled out a non-leveraged airline ETF (FLYX), and earlier this year detailed plans for a suite of targeted Indian equity funds. And in a recent SEC filing, Direxion shed some light on plans for additional ETF offerings, including one that seeks to offer equal-weight exposure to the Nasdaq-100 Index and a unique product designed to shift exposure between the equities that make up the Nasdaq and low risk cash based on volatility.
The proposed ETFs include:
Direxion Wireless Communications Shares: This ETF would track the Dow Jones Global Mobile Communications Index, a global benchmark that is comprised of large-cap companies involved in some aspect of the design, distribution, manufacture and sale of mobile communication hardware or services. The index consists of about 30 constituents, including both domestic and international companies. This fund would charge an expense ratio of 55 basis points.
Direxion NASDAQ-100 Equal Weighted Index Shares (QQQE): This proposed fund would seek to replicate the NASDAQ-100 Equal Weighted Index, a benchmark that includes the 100 largest domestic and international securities listed on the Nasdaq that are not in the financial services industry. This methodology results in a fund that has a heavy tilt toward technology, which makes up about two-fifths of the total assets. Additionally, high weightings are also given to the consumer and healthcare sectors which receive about 20% of total AUM. The filing indicated an expense ratio of 40 basis points annually.
The Nasdaq-100, which serves as the basis for the ultra-popular QQQ, has historically featured a rather odd weighting methodology as a result of a rebalance years ago that amplified Apple’s (AAPL) allocation. A recent adjustment was made to more closely align the index weights with market capitalizations; AAPL now accounts for about 12% of total assets, while the top 10 components make up roughly half of the total portfolio. The equal-weighted Direxion fund would give an equivalent weighting to each components (i.e., 1%).
Direxion Nasdaq Volatility Index Shares (QVOL): This ETF would track the DWS NASDAQ-100 Volatility Target Index, which is designed to respond to the volatility of the widely followed stock index. QVOL would do this by splitting assets between a notional allocation to the NASDAQ-100 and a cash investment, based on observed historical volatility. As volatility increases, exposure to the NASDAQ-100 will decrease and exposure to the cash component will increase. When volatility decreases, the reverse occurs: Exposure to the NASDAQ-100 will increase and exposure to the cash component will decrease.
Based on historic volatility of the NASDAQ-100, the percentage exposure to the NASDAQ-100 component is expected to range between 17% and 150%, with the exposure to the cash component ranging between -50% and 83%. This product would charge 65 basis points.
Two of the proposed ETFs would compete most closely with existing offerings from First Trust. That issuer already offers the NASDAQ-100 Equal Weighted Index Fund (QQEW) and the NASDAQ CEA Smartphone Index Fund (FONE). While First Trust may have the "first mover" advantage, Direxion would offer lower expense ratios. The proposed wireless communications ETF is 15 basis points cheaper than FONE while the equal-weighted product will be 20 basis points cheaper than QQEW.
The proposed Nasdaq volatility ETF would be unlike anything currently on the market; perhaps the closest existing ETP is the Barclays ETN+ S&P VEQTOR ETN (VQT). That product shifts exposure across equities, volatility, and cash depending on certain price signals and volatility metrics.
Disclosure: No positions at time of writing.
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