Previously, the company used daily returns to calculate a fund’s performance, and the new twist will track monthly prices within their underlying benchmarks. Theoretically, this should help investors hold the ETFs for a longer period of time, assuming the fund is held throughout the month, from the beginning, not the end.

Re-balancing techniques used by Direxion aren’t likely to completely smooth short-term differences between benchmark and fund returns, Coleman points out. Daily deviations are bound to occur. The objective is to hold monthly returns while trading the dailies around those.

A few of the ETFs from the provider already in the lineup and trading are:

• Direxion Large Cap Bull 3x Fund (BGU): down 28.3% year-to-date

• Direxion Financial Bear 3x Fund (FAZ): down 47.8% year-to-date

Heather Bell on Index Universe excerpted this coverage from ETFR’s January cover story, where Direxion Vice President and Marketing Director Andy O’Rourke talks about the new line of funds. The triple leveraged ETFs are capable of extreme volatility as they do triple market direction, so volume and liquidity are important for their success. By the end of November, one month after trading began, the eight funds had accumulated a total of more than $510 million in assets. The largest fund, Direxion Large cap Bull 3X Fund (BGU) alone had $195 million, in little under one month.

Investors who want a hedge and are able to stomach the risks would want these types of ETFs in their playbook. The average investor may want to proceed with caution, as these are not buy-and-hold investments and can have huge movements in both directions.

DirexionShares can be employed in three ways:

• For one, small short-term bets when the markets are volatile, and investors are on the sidelines in cash.
• When the market takes off and you haven’t jumped on the bandwagon, these ETFs can hlep you catch up. Triple leverage equals quick exposure.
• As hedging tools that will fill a void, these ETFs can help. Good, low-cost market exposure for specialized needs are what these funds can aim at.

Just watch those trend lines and have an exit strategy.

The Direxion Shares have seen an inflow of hundreds of millions of assets and trades millions of shares on a daily basis, rendering it competitive in the leveraged ETF market space. In fact, Morningstar reports that Direxion’s largest ETF, the Large Cap Bull 3X Shares (BGU) has $237 million in assets and an average daily trading volume of 8.2 million shares.

These are staggering numbers, considering the riskiness of leveraged and inverse ETFs; especially after the most recent ban on short-selling implemented by the federal government and the tax consequences that came after an abnormally wide distribution of capital gains, states Ian Salisbury of The Wall Street Journal.

Although these funds offer investors the opportunity to magnify the daily movements of the market, one must always be mindful of the potential consequences that may arise with such a risky investment. Be sure you can stomach the risk before diving in, and understand how these instruments work.

Direxion Shares exchange traded funds (ETFs) are a new tool offering forward thinking investors innovative options and market exposure, and they’ve just expanded their family a little more.

The first-of-its-kind ETF provider has added six more funds to its family, and they now offer a total of 14 triple leveraged ETFs. The new offerings focus on developed markets, emerging markets and the technology sector.

The new funds are:

• Developed Markets Bull 3x Shares (DZK)
• Developed Markets Bear 3x Shares (DPK)
• Emerging Markets Bull 3X Shares (EDC)
• Emerging Markets Bear 3x Shares (EDZ)
• Technology Bull 3x Shares (TYH)
• Technology Bear 3x Shares (TYP)

These ETFs enable an investor to navigate through the market  with bull and bear fund flexibility, and effectively allocate capital to seek improved risk adjusted returns, advertises Direxion Shares. In layman’s terms, they are designed to seek 300% of the daily performance, or 300% of the inverse of the daily performance of the four indexes that they track, and are intended to be used as a supplement in a portfolio.

The Direxion funds have been seen tremendous success, being utilized by hedge fund managers, institutional investors, and other active investors, who have pushed the 3x funds over $800 million in assets.  Additionally, Direxion plans to continue their ongoing liquidation of seven of their traditional funds to focus on more international fund offerings, states in an interview between Eric Rosenbaum of Index Universe and Andy O’Rourke of Direxion Funds.

In addition to the new launches, the company also has filed for bull/bear India and China ETFs.

The other eight funds currently being offered are:

• Direxion Large Cap Bull 3X Shares (BGU)
• Direxion Small Cap Bull 3x Shares (TNA)
• Direxion Energy Bull 3x Shares (ERX)
• Direxion Financial Bull 3x Shares (FAS)
• Direxion Large Cap Bear 3x Shares (BGZ)
• Direxion Small Cap Bear 3x Shares (TZA)
• Direxion Energy Bear 3x Shares (ERY)
• Direxion Financial Bear 3x Shares (FAZ)

Many investors believe that ETFs, especially the ultra or 3x funds, such as Direxion Shares ETF Trust Large Cap Bull 3X (BGU), are to blame for the roller coaster ride in market volatility that is being seen on Wall Street.  This is actually not the case.

A research study conducted with data from LakeView Asset Management LLC, suggests that it is in fact futures that influences the activity of speculators and hedgers and therefore is the indicator for market volatility and manipulation, states Scott Rothbort for the Street.com.

Several hedge funds and risk-averse investors use ETFs as an insurance policy, but this still doesn’t mean that index ETFs and their derivatives will have a pivotal influence on individual stocks. Instead, they will more likely impact the indexes that they track.  For example, Exxon Mobil (XOM) represents 5.42% of the S&P 500, so using an ETF to influence this company’s stock would be challenging.

A remedy to this predicament could be the use of sector-specific ETFs, Rothbort says, where no futures are available.  Moving these ETFs in a particular direction will have an offsetting effect on the underlying shares of the ETF, options on the ETF or options on the underlying stocks making it much easier to manipulate the price of an individual stock.

It is apparent that both ETFs and futures are heavy hitters and could make or break a trading day.

Direxion has launched eight ETFs that are leveraged bull and bear funds designed to seek 300% of the daily performance, or 300% of the inverse of the daily performance, of the four indexes they track.

Among the reasons that Direxion went with triple leverage is that they’d be first on the market with a new and different product, instead of getting lost in a sea of similar products.

“ETFs that are first-movers tend to have an enormous advantage. We didn’t want to come out with products similar to what was already out there,” says Dan O’Neill, president and chief investment strategist. “We believe that that’s what’s going to distinguish them and that will hopefully be a point of attraction for clients. We’ve gone with high leverage because we think it’s attractive.”

When these funds first appeared in registration, there was a bit of chatter about whether triple leverage was a great idea for investors. After all, someone who isn’t careful or mindful of the risks could land themselves in hot water with the standard long and short funds, let alone one that offers triple leverage.

But O’Neill cautions against viewing these or any other leveraged fund in a vacuum.

“The question we have is how you’re going to use them. What matters is how you use them in a broader portfolio. If you use them to hedge, it may lower your risk profile,” he says.

The funds aren’t meant to be the centerpiece of any investors’ portfolio, but as part of an overall strategy. Putting all of your eggs in one basket is never a good idea.

“When someone hears ‘three beta,’ the assumption might be that someone would put 100% of their assets in that fund. They’re meant to be complementary or supplements. They can be used wisely.”

O’Neill says that most of the criticism has come from those who see ETFs as something where every fund needs to be suitable for every investor, but that simply isn’t the case.

“There are lots of investment tools used at the margins or only used by certain players. This is a suite of products that can be used very wisely by certain investors,” says O’Neill.

The early appearance is that professional investors will find these funds of particular interest, including hedge funds, registered investment advisors and proprietary trading desks on Wall Street, says Bill Franca, Direxion’s head of sales.

“I don’t think they’re going to be used by passive investors who are checking their portfolio once every six months. That’s not what these products are for,” Franca points out.

“They’re meant to be used by people who are managing their portfolios very actively, by professional, sophisticated investors,” O’Neill adds.

Overall, these funds are just another tool in the shed for investors who want more leverage. Franca says, “”We believe that leveraged ETFs have already proven their versatility in the marketplace. We feel that there’s definitely a place for leverage because of the ability of different firms to achieve leverage because of what’s going on in the market today.”

The new funds are:

• Direxion Large Cap Bull 3X Shares (BGU)
• Direxion Small Cap Bull 3x Shares (TNA)
• Direxion Energy Bull 3x Shares (ERX)
  
• Direxion Financial Bull 3x Shares (FAS)
• Direxion Large Cap Bear 3x Shares (BGZ)
• Direxion Small Cap Bear 3x Shares (TZA)
• Direxion Energy Bear 3x Shares (ERY)
• Direxion Financial Bear 3x Shares (FAZ)