As of Sept. 30, Direxion‘s leveraged index mutual funds have switched their investment objectives from daily to monthly results.
The change is in response to industry dynamics, the provider says. “We believe there is demand for monthly beta mutual funds, and that our modifications will be attractive to a certain segment of sophisticated investors,” Direxion President Dan O’Neill says.
The offered funds will include bull funds, which seek to produce 200% of the monthly performance of its benchmark, and bear funds, which seek to reflect 200% of the inverse of the monthly performance of its benchmark. Investments made at the start of the month and finish on the end of the same month should receive 200%, or -200% if inverse, of the return of the benchmark.
Within a month, the benchmark moves will impact the fund’s exposure and net assets equally. What results is a new ratio of exposure level to asset level. For example:
- Bull funds. If benchmark gains, exposure level and risk will drop below 200%. If benchmark declines, exposure level and risk will be over 200%.
- Bear funds. If benchmark gains, exposure level and risk will be higher than 200%. If benchmark declines, exposure level and risk will fall below 200%.
Depending on when the fund is purchased during the month, the intra-month purchase will have a higher or lower exposure level according to the type of fund, and exposure will remain constant through the rest of the month, or until the position is sold.
If an investor decides to hold the fund through the end of the month, however, there will be a rebalancing. Exposure will be reset to 200% or -200% on the last day. Accordingly, gains will be added to the original principal and risk will be higher, or losses will be taken from the original principal and risk reduced.
Direxion notes the the effects of compounding may still be substantial for monthly mutual funds held over multiple-month periods.
Additionally, Direxion has filed to offer monthly beta exchange traded funds (ETFs), as well, but the provider doesn’t know when, or if, such ETFs will be able to reach the market. No changes to its current lineup of daily beta ETFs are anticipated.
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.