Direxion, the ETF firm that pioneered 3x leveraged ETFs, announced yesterday that it will execute reverse splits on two of its funds, the Daily Financial Bull 3x Shares (NYSEARCA:FAS) and Daily Financial Bear 3x Shares (NYSEARCA:FAZ). FAS will undergo a 1-for-5 reverse split, meaning that the number of FAS shares outstanding will decline by approximately 80% and the net asset value of the fund will increase fivefold. FAZ will undergo a 1-for-10 reverse split. The two ETFs will begin trading on the NYSE Arca exchange on a split-adjusted basis on Thursday. Last month, Direxion executed a 1-for-2 reverse split on its Daily Mid Cap Bear 3x Shares (MWN).
FAS and FAZ are among the most actively traded ETFs, with average daily volumes of 184 million and 158 million shares, respectively. As such, the decision to split has little to do with the popularity of the fund, and more to do with the complexities of leveraged ETFs. These 3x financial ETFs are perhaps the best example of the (unexpected) behavior of leveraged ETFs in oscillating markets – FAS is down almost 70% year-to-date in 2009, while FAZ is down nearly 85%. FAS ended trading on Tuesday at $7.89, while FAZ closed at $5.39.
Direxion posted additional answers to FAQs regarding reverse splits here.
Disclosure: No positions at time of writing.