Although many have criticized leveraged and inverse exchange traded funds (ETFs), these types of funds offered by Direxion have been a hit.
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.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.