Actually Smart Beta

Speedread

Direxion is listing a suite of first-of-a-kind ETFs that allow investors to bet certain sectors, countries or factors will beat others

 

Direxion lists 10 very interesting geared ETFs

Leveraged ETF specialist Direxion is listing a dozen new ETFs, two of which simply expand the 3x bull and bear proposition to the newly redefined communications sector. The other 10 of which are very interesting.

 

  • Direxion Daily Communication Services Index Bull 3X Shares (TAWK)
  • Direxion Daily Communication Services Index Bear 3X Shares (MUTE)**
  • Direxion Russell 1000 Value Over Growth ETF (RWVG)
  • Direxion Russell 1000 Growth Over Value ETF (RWGV)
  • Direxion Russell Large Over Small Cap ETF (RWLS)
  • Direxion Russell Small Over Large Cap ETF (RWSL)
  • Direxion MSCI Cyclicals Over Defensives ETF (RWCD)
  • Direxion MSCI Defensives Over Cyclicals ETF (RWDC)
  • Direxion MSCI Emerging Over Developed Markets ETF (RWED)
  • Direxion MSCI Developed Over Emerging Markets ETF (RWDE)
  • Direxion FTSE Russell US Over International ETF (RWUI)
  • Direxion FTSE Russell International Over US ETF (RWIU)

 

TAWK and MUTE

TAWK and MUTE (surely candidates for ETF.com’s best ticker award) will give 300% and -300% of the daily performance of communications companies within the S&P 500. As always, investors considering these products need to make sure they understand the risks involved with daily resets. The SECs education section is here.

 

X over Y

The other 10 ETFs are all first of a kind, from what we can tell.

 

Each of the “X over Y” ETFs tracks an index that is made something like a spread bet. The indexes all take a 150% long position on a sub-index tracking X, while also taking a 50% short position on a sub-index tracking Y.

 

For example, the Large Over Small ETF (RWLS) tracks the Russell 1000/Russell 2000 150/50 Net Spread Index. This index takes a 150% long position on the Russell 1000, while also taking a 50% short position on the Russell 2000.

 

The funds can use either physical or synthetic replication to track their indexes. Our reading of the prospectus leads us to think the funds will mostly use swaps to track their indexes. They will charge management fees between 0.46% and 0.58%.

 

Analysis – very interesting start to 2019

Short selling, in our experience, is something that a lot of people talk about, yet few actually do.

 

In keeping with this, most ETF providers have been reluctant to build short selling into their investment strategies. This is true even of factor ETFs, despite academics stressing that short selling is essential to harvest factor premiums.

 

With this in mind, it’s great to see an issuer step up to the plate and bring in factor funds that incorporate short selling.

 

As far as we’re aware, there are only a handful other ETFs that do this. They include AGFiQ US Market Neutral Value Fund (CHEP), which goes long on an index of equally weighted value stocks while shorting selling growth stocks. CHEP, while an impressive ETF and one of the most honest implementations of academic factor investing, has only brought in $1.1M under management (almost all of which would be seed).

 

Another we know of is the Amundi ETF iSTOXX Europe Multi-Factor Market Neutral UCITS ETF (MKTN:FP), which has brought in a stupid amount of money – almost $240M euros – despite only listing in late 2017.

 

It will be very interesting to see how today’s listings travel.