One of the leading exchange traded fund (ETF) providers, Direxion, is going to change their investment focus for their leveraged mutual funds.

Direxion has changed its focus for its 17 open–ended mutual funds, which will no longer rebalance each day. Instead, each of the funds will rebalance each month. This is an effort to escape the daily compounding issues that occurs every time the fund resets, a person close to the issue told Luisa Beltran for Ignites.

However, simple rebalancing will not eliminate the issue of compounding. Instead, the funds seek calendar month leveraged investment results which should not be equated with seeking a leveraged goal for shorter than a calendar month, says the provider.

Compounding is the magnified gains from gains or losses upon losses, and the more compounding that occurs, the less likely that a leveraged fund will track its underlying index. Direxion and other leveraged and inverse fund provider have been very open about these risks.

Direxion is the nation’s eighth largest ETF provider, and is known for its popular line of triple leveraged ETFs.

For more stories about Direxion, visit our Long-Short ETF category.

Tags: Long-Short ETFs