Direxion launched the first 10 ETFs Wednesday in its new and unique Relative Weight suite as part of an evolution of product offerings to reach a wider array of investors to pinpoint expressed market views. In essence, the suite gives investors the ability to benefit from capturing the upside of a correct long position as well as the spread between the long and associated short position.
With these new ETFs, Direxion is the first to offer this long-short relative value strategy in an index-based fund. Whether they believe, for example, value will outperform growth, emerging will outperform developed markets, or vice versa–all is captured within the convenience of one ETF as opposed to holding two separate positions.
“When we create this distinctive pairs, it’s because the underlying drivers of a value stock or a growth stock, an emerging market country, or developed market country are very different–so the fundamentals there are different and the macroeconomic environment is impacting them in different ways,” said David Mazza, Managing Director, Head of Product at Direxion. “Investors try to take advantage of those. Everyone has a view. ‘Is this the environment for value? Is this the environment for growth?'”
Ease and Cost-Effectiveness
In addition to the ease of managing one position as opposed to two or more, the expressed view captured in one ETF is also more cost-effective. Furthermore, it potentially gives an investor access to additional returns as opposed to a long-only or short-only position, provided the markets go in the perceived direction as intended.
“These products give you that ability to take advantage of the spread between that pair of stocks–that value stock and that growth stock for example,” said Mazza. “What we’ve done is create a product that gives you very efficient use of capital.”
“Shorting can be very complicated and it can be very costly and this does that for you, but you’re you still get the exposure on the long side,” added Mazza.
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The ETFs seek to track indexes from FTSE Russell and MSCI that capture common macro thematic views, without the typical constraints encountered with other funds. Investors who deploy some level of thematic views in their investment process can now use shorting to enhance their long exposure.
“You can overweight growth if you believe it’s going to outperform the market. But, for some investors, that only captures half of their view. If growth beats the market, then it obviously beats value by even more,” said Mazza. “The beauty of these funds is they allow you to extend your viewpoint to the short side to seek additional returns. Your view is no longer mismatched with the fund—the fund is now designed to match your view.”
Each fund allows investors to capture both sides of their expressed view, with a risk profile similar to the broad underlying asset class. The products are built on Direxion’s core expertise of delivering sophisticated and precise exposure, whether views are short, intermediate or long term.