A reverse split in an ETF often is the responsible thing for the ETF provider to do. It doesn’t mean the ETF hasn’t been successful in meeting its daily mission. A fund that was priced at $40 two years ago and that is priced at $5 today was inverse a market that was working against it, and that happens sometimes.
Leveraged ETFs, like those that Direxion offers, have higher volatility and may plummet in value very suddenly. If share prices are too low, the fund’s daily tracking error may increase, which makes it hard for the ETF to reflect the value of its underlying index. Additionally, low-priced volatile funds may trade at a net asset value (NAV) that is disparate from actual share prices, and day traders would take advantage of this flaw. [Bear ETFs Winning in Uncertain Times.]
For more information on exchange traded funds, visit our ETF 101 category.
The four affected funds are:
- Direxion Daily Energy Bear 3x Shares (NYSEArca: ERY)
- Direxion Daily Real Estate Bear 3x Shares (NYSEArca: DRV)
- Direxion Daily Small Cap Bear 3x Shares (NYSEArca: TZA)
- Direxion Daily Technology Bear 3x Shares (NYSEArca: TYP)
Max Chen contributed to this article.