Popular leveraged and inverse exchange traded fund (ETF) provider Direxion recently announced a reverse share split in four of their funds. What does that mean?
Four of Direxion’s funds will go through a 1-for-5 reverse share split in early July, reports Chuck Jaffe for Boston Herald. Despite what this means for regular stocks, a reverse split is rather common in the ETF industry and it’s usually viewed as a good thing.
A share split adjusts a stock price. The money invested is still the same, but you hold more shares at a lower price. Reverse splits, on the other hand, occur more commonly among distressed companies that need to increase their low stock prices or meet listing requirements of an exchange. In a reverse split, one holds less shares of a stock valued at a higher price. [How to Play the S&P 500 with ETFs.]
For ETFs, share price points are basically arbitrary. Fund price movements mirror changes in its underlying holdings, so the ETFs won’t surge or plummet based on a split.