While equity markets have advanced strongly since the March lows were formed, not all stocks have performed equally as well, making it difficult to cull the best stocks from the rest. For example, tech stocks have been on fire until recently, as the Nasdaq Composite has sought out fresh highs earlier this week, while other stocks like airlines and biotech are more fickle and fragile, and have suffered from the mercurial regulations or false hopes prompted by the coronavirus pandemic.
For investors looking for those stocks which may have suffered recently yet are still viable candidates for the longer term based on their underlying fundamentals, the economic environment, or other factors, Direxion has created an ETF that may be worth exploring.
According to the Direxion website, “The Direxion Fallen Knives ETF (NIFE) aims to deliver a simple, systematic approach to capturing stocks that have fallen significantly, but with the financial health to support future outperformance. The idea of falling – or fallen – knives is a commonly understood one, and the rules-based approach allows for a framework to capture the most attractive opportunities. The fund may provide investors with a distinctive approach to U.S. equities with a distinct exposure profile.”
There are several things that make NIFE unique according to Direxion. The ETF is able to “systematically identify stocks that have fallen in price significantly in the past 12 months, capture the most desirable fallen knives that boast the financial health necessary to support a potential rebound, and may be considered a satellite equity holding, which tilts simultaneously toward temporarily out of favor stocks, with characteristics for a potential rebound.”
The Direxion Fallen Knives ETF (the “Fund”) attempts to achieve investment results, before fees and expenses, that track the Indxx US Fallen Knives Index (the “Index”). But as most investors are aware, there is no guarantee that the fund will achieve its stated investment objective.
With a 0.50% expense ratio, The Direxion Fallen Knives ETF contains a healthy mix of stock sectors that includes companies such as ABIOMED, Regeneron Pharmaceuticals, I llumina, Neurocrine Biosciences, NVIDIA, Cognex, and IPG Photonics.
For investors who have difficulty determine which stocks are currently undervalued, this ETF could be potentially very valuable indeed.
For more market trends, visit ETF Trends.