ETF Spotlight on Direxion Daily Small Cap Bull 3x Shares (NYSEArca: TNA), part of an ongoing series.

Assets: $957.17 million.

Objective: The Small Cap Bull 3X ETF tries to reflect 300% of the daily price performance of the Russell 2000.

Holdings: The fund utilizes swaps to mimic the 3 times daily return of the underlying index.

What You Should Know:

  • Direxion manages the leveraged ETF.
  • TNA has an expense ratio of 1.03%. [Small-Cap ETFs Lagging S&P 500]
  • Leveraged funds are highly risky and are better suited for sophisticated investors who are willing to carefully monitor the fund and speculate on daily movements.
  • It should be noted that TNA is not a buy-and-hold investment. The fund rebalances daily and only tries to reflect the daily performance of the underlying index. Any attempt at holding the fund for a longer duration will likely result in divergence in the performance of the fund and the benchmark index  due to the effects of compounding.
  • “Over periods longer than one day, a constant holding in levered bull and bear funds can both have negative compound returns because of the amplified volatility drag. Avoiding these counterintuitive results requires daily trading,” Morningstar Analyst Micahel Rawson warns.
  • ETFs are taxed on a look-through basis — investors are taxed as if they directly held the underlying securities. Consequently, investors who hold TNA will be taxed at short-term capital gains rates because the fund uses index swaps.
  • “U.S. small-cap equities have outperformed over the past 10 years, providing an annualized return of 9.2%, easily outpacing the large-cap equity returns of 2.7% over the same period,” Rawson added.
  • Additionally, small-cap stocks are considered much more volatile compared to their large-cap cousins.

The Latest News:

  • As markets stabilize somewhat follow the recent equity sell-off, investors first sought out the safer large-caps, but money is beginning to rotate into small-caps, according to The Wall Street Journal. [Small-Cap ETFs Lagging S&P 500]
  • Analysts recently spotted a potential “bearish engulfing” pattern in the TNA, pointing to the heavy volume increases as a reliable indicator of this bearish indicator, according to Financial News Network Online.

For past stories in this series, visit our ETF Spotlight category.

Direxion Daily Small Cap Bull 3x Shares

Max Chen contributed to this article.

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.