Direxion has rolled out two new short or bearish exchange traded fund plays that track widely observed consumer staples and utilities sectors.
On Thursday, Direxion added the Direxion Daily Consumer Staples Bear 1X Shares (NYSEArca: SPLZ) and Direxion Daily Utilities Bear 1X Shares (NYSEArca: UTLZ). Both funds come with a 0.45% net expense ratio.
“The Federal Reserve recently raised interest rates and signaled up to three more increases in 2017 due to a strengthening economy, increasing inflation and a multi-year low unemployment rate. Against that backdrop, investors are concerned a rising-rate environment may have a negative impact on their portfolios,” Paul Brigandi, Managing Director at Direxion, said in a note. “The launch of SPLZ and UTLZ is timely, as they both provide inverse exposure to two sectors having historically high sensitivity to rising rates.”
As a defensive play, consumer staples would typically underperform during more economically cyclical periods, such as the expected expanding economic environment ahead, which usually coincides with a Federal Reserve interest rate hike to keep growth from overheating. Moreover, bond-esque utilities sector has historically exhibited an inverse correlation to Treasury yields, weakening as rates rise.
To hedge against any potential weakness ahead in the consumer staples and utilities sectors, traders could take a look at the newly launched SPLZ and UTLZ.
SPLZ tries to reflect the -1x or -100% daily performance of the Consumer Staples Select Sector Index, which includes companies engaged in food & staples retailing 23.0%, household products 19.7%, food products 18.6%, beverages 19.9%, tobacco 17.2% and personal products 1.5%. Top holdings include Procter & Gamble 12.4%, Coca-Cola 8.9%, Philip Morris International 7.8%, Altria Group 6.6% and Wal-Mart 5.7%.
The Consumer Staples Bear ETF may act as the simple inverse version for the popular Consumer Staples Select SPDR (NYSEArca: XLP), which tracks the same underlying index.
UTLZ tries to reflect the -1x or -100% daily performance of the Utilities Select Sector Index, which is comprised of electric utilities 61.9%, multi-utilities 34.1%, independent power producers & energy trades 1.9% and water utilities 2.1%. Top holdings include NextEra Energy 9.2%, Duke Energy 8.1%, The Southern Co. 7.9%, Dominion Resources 7.9% and Exelon Corp. 5.4%.
The Utilities Bear ETF may act as the simple inverse version of the Utilities Select Sector SPDR (NYSEArca: XLU), which tracks the same underlying index.
“Single inverse ETFs are trading tools that allow investors to either seek profit or seek to apply a hedge for an existing portfolio position that they anticipate will experience negative returns, in the short term,” according to Direxion.
For more information on new fund products, visit our new ETFs category.