Direxion launched the first four of single stock leveraged and inverse ETFs. The funds, which trade on the Nasdaq, allow sophisticated traders to obtain magnified or inverse exposure to the daily performance of the common stocks of Apple and Tesla. They are the Direxion Daily AAPL Bull 1.5X (AAPU), the Direxion Daily AAPL Bear 1X Shares (AAPD), the Direxion Daily TSLA Bull 1.5X Shares (TSLL), and the Direxion Daily TSLA Bear 1X Shares (TSLS).
VettaFi spoke with David Mazza, managing director and head of product at Direxion, about these funds, the value of a single-stock ETF, and why the current investment environment is ripe for short-term tactical trading opportunities.
VettaFi: Tell us about these single-stock ETFs you recently filed for. Which stocks do they invest in?
David Mazza: We filed for a wide range of single stocks from Apple to Tesla to Microsoft and Amazon, but the funds are a series of leveraged 1.5x bull and leveraged inverse 1x bear funds.
VettaFi: What’s the value of a single-stock ETF? Isn’t the whole point of an ETF to invest in a basket of funds?
David Mazza: I view the ETF structure as a vehicle for efficient exposure. And that efficient exposure can manifest itself in different ways. When you think about the first ETF listed on the S&P 500, it was relatively simple. Since then, there have been ETFs that have been developed for areas including fixed income, commodities, and gold bullion, as well as across a variety of markets as well.
VettaFi: What made Direxion decide that now is the right time to offer these ETFs?
David Mazza: This environment is one that’s ripe for short-term tactical trading opportunities. And we’re likely to be in an environment where, because of the Federal Reserve’s plans to increase interest rates, we see heightened volatility for some time, so there are opportunities for traders to be more tactical with their portfolios.
Now, when talking about any leveraged ETF, these are intended to be short-term trading tools. They’re not intended for long-term use, nor for anyone who doesn’t have the ability to monitor their positions on a daily basis because with these ETFs, you need to make a buy, sell, or hold decision daily.
VettaFi: Tell me some use cases for these ETFs. What are some examples of good opportunities for traders to implement them?
David Mazza: One area that traders can look at is to amplify exposure. Let’s say they have a viewpoint on a particular stock that’ll report positive earnings… They can look toward a bull fund to amplify that upside exposure. Conversely, if they have a negative viewpoint, they can look toward an inverse fund.
There’ve been some opportunities for some time to purchase the shares, but you may want to over a short-term basis to provide amplified upside potential, which a Tesla bull fund could do.
VettaFi: What is Direxion’s long-term goals for these ETFs?
David Mazza: This is a means for us to provide not just exposure to the individual index level, but also at the individual stock level, as we’ve seen greater interest in trading over the last few years, which we see as a benefit as traders think about the role they play in their portfolio construction.
VettaFi: Can we expect any more single-stock ETFs from Direxion soon?
David Mazza: Our clients have asked us and come to us to focus on these two securities, and we provide both the bull and the bear side. We’ve been managing leveraged inverse portfolios through a multitude of different environments and consider ourselves well-seasoned, and I would expect us to introduce additional funds as the opportunities arise.
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