If you need or want more leverage in your exchange traded funds (ETFs), today you’re going to have the choice.
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.