Direxion: The Road Ahead for Leveraged ETFs | ETF Trends

Direxion first appeared on the exchange traded fund (ETF) scene in late 2008, when the firm launched the first of a growing line of triple-leveraged funds.

Since then, the provider has ballooned to hold $5.1 billion in assets under management. We caught up with Direxion President and Chief Investment Officer Dan O’Neill to talk about the firm’s history, where they’re going and their thoughts about the future of leveraged and inverse ETFs.

How did Direxion get started? How long has the firm been around?

Potomac Funds was initially started in 1997 by, among others, Tim Hagan and Terry Apple, who were originally employees at Rydex. In 2006, we decided to rename and re-brand Potomac Funds – a name which sounds somewhat historical – to Direxion, a name which seems both more current and descriptive of the goals of our funds. Each of our leveraged index funds and ETFs seek a direction – bull or bear. We spelled Direxion with an “X” to refer to the use of leveraged in our Funds – with “X” being a multiplier.

What prompted the move into ETFs?

Our primary business has been leveraged index mutual funds. A key selling point of leveraged index mutual funds was that they offered liquidity – you could trade into or out of the funds on a daily basis, which distinguished the funds from the wider mutual fund universe and its emphasis on longer holding periods.

However, if you want liquidity, ETFs are superior because they can be traded intra-day. We saw the enormous success of ProShares both in absolute terms and relative to ProFunds, and we realized that daily beta leveraged index products were going to move to the ETF environment.

How did Direxion arrive at the idea for triple leveraged ETFs?

ProShares had enormous success with its ETFs, most of which are 2-beta products. We recognized that if we were going to succeed, we needed to distinguish our products, and we chose to do so primarily around the degree of leverage – we went with 3-beta.

Where do you see Direxion five and 10 years from now?

I would hope that we can be known as a premier provider of tactical investment products. Much of the industry is strategic in nature – it looks at the long-term. However, with so much access to information and technology, some portion of the investment community wants to trade actively and invest tactically. We seek to serve that group. We will continue to build leveraged index products and other products which have a tactical approach.

Are there plans to launch funds that rebalance monthly, as what happened with the mutual funds?