As markets continue to experience sharp swings amid heightened volatility and uncertainty, leveraged exchange traded funds are undergoing reverse splits in an attempt to beef up share prices.
ETFs, unlike regular company stocks, are funds and managers may change a fund’s price depending on the current market environment, writes Selena Maranjian for The Motley Fool.
“[S]ome technical issues in how ETFs work could result in low-priced volatile funds sometimes trading at a net asset value that is different from its actual share price; that’s an invitation for traders trying to game the system,” Chuck Jaffe for MarketWatch previously commented. “Low share prices also allow the smallest fast-money traders to get in and out with very little skin in the game.”
Direxion recently announced reverse share splits for a half-dozen leveraged ETFs.
Leveraged products may see their values slowly pushed lower over time. As a result, the fund company may implement a reverse split to bring up share prices. [Direxion Announces Reverse Split of Six ETFs]