On Thursday, Direxion launched its newest leveraged ETF, the Direxion Daily Global Clean Energy Bull 2x Shares (KLNE). It is a leveraged ETF that seeks to return 200% of its benchmark index, the S&P Global Clean Energy Index, in a single day.
The S&P Global Clean Energy Index gives exposure to developed market countries whose economic fortunes are in the global clean energy business. These include companies that are either involved in the production of clean energy or else provide clean energy technology and equipment. As of the end of May, the Index contained 81 companies with a median market cap of $11.2 billion, which were focused in the utilities, industrials, and information technology sectors.
“While the long-term trend toward more sustainable energy sources continues to increase, stocks in this sector are likely to remain volatile as macro drivers impact moves in the short-term,” said David Mazza, Managing Director, Head of Product at Direxion, in the press release. “KLNE allows traders to take a bold position in companies exposed to solar, wind, and other renewable energy sources.”
Investing with Leverage
As a leveraged product, it needs to be monitored actively and checked daily and is meant for experienced investors. It captures twice the daily return of the underlying benchmark, with the exposure resetting daily. It does not provide a simple 2x multiplier on the return of the underlying index.
If the fund is held over a period of time longer than a single day, and the underlying S&P Global Clean Energy Index remains trendless, oscillating without establishing a clear upward or downward trend, KLNE can lose money.
However, in times of a clear upward trend, KLNE can outperform the index due to compounding.
Top holdings in the S&P Global Clean Energy Index as of the end of June include Vestas Wind Systems at 7.96%, Enphase Energy Inc at 6.66%, and Orsted AS at 5.85%.
KLNE has an expense ratio of 1.07%.
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