Through the various exchange traded fund strategies available, financial advisors and knowledgeable investors can better customize their market exposure and potentially enhance returns or diminish portfolio risks.
“ETFs are a way to empower advisors to make decisions and they can implement portfolio strategies,” Daniel O’Neill, CEO of Direxion, said at the Inside ETFs 2018 conference. “Direxion has always had bull and bear ETFs and levered ETFs, so we’re agnostic as to what advisors want to do.”
“We’ve built a lot of athletic tools that advisors can use, and for the most part, they use them as compliments to an overall investment strategy,” O’Neill added.
For example, in an extended bull market rally, financial advisors and investors may implement a small portfolio hedge to diversify risk in an equity portfolio. Investors may look to inverse or bearish ETF plays like the Direxion Daily S&P 500 Bear 1x Shares ETF (NYSEArca: SPDN), which takes a simple inverse or -100% daily performance of the S&P 500 index. Investors could include a small position of around 5% of their total equity portfolio to hedge against any potential turns that would negatively affect their long stock exposure.
O’Neill also pointed to the company’s new family of ETFs, called Portfolio+ ETFs, each provide 25% added daily exposure to popular broad-based indexes targeted by advisors.
The ETFs include the Portfolio+ S&P Mid Cap ETF (PPMC), Portfolio+ Developed Markets ETF (PPDM), Portfolio+ Emerging Markets ETF (PPEM), Portfolio+ Total Bond Market ETF (PPTB), Portfolio+ S&P 500 ETF (PPLC) – formerly Direxion Daily S&P 500® Bull 1.25X Shares, and Portfolio+ S&P Small Cap ETF (PPSC) – formerly Direxion Daily Small Cap Bull 1.25X Shares.
“Most of our products historically have been known for being, as I said, athletic sort of motorcycle, more than minivan, and now, we’re offering products that are much more like the traditional ETFs,” O’Neill said.
If investors think that a portfolio offering 100% exposure to the markets is good, it stands to reason that a portfolio with 125% exposure can be a little better, even after accounting for potential risks.
“Our thesis was: well if you’re an advisor and you have a great idea, you have this core allocation strategy why not sweeten a little bit, why not enhance it a little bit with the extra 0.25 beta point,” Sylvia Jablonski, Managing Director of Capital Markets and Institutional ETF Strategist for Direxion, said at the conference. “So what you’re doing is taking a look at your large-cap exposure and enhancing it a little bit with a levered, lightly levered ETF.”
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