Direxion Thanksgiving Lack of Need

USA

With a LACK of NEED, Direxion lists

Leveraged and inverse specialist Direxion is listing two new consumer staples ETFs that will doubtless defend Direxion’s reputation as coming up with the best tickers.

 

  • Direxion Daily Consumer Staples Bear 3X Shares (LACK)
  • Direxion Daily Consumer Staples Bull 3X Shares (NEED)

Both funds are fairly biscuit tin. Like other Direxion 3x bull and bear shares, NEED and LACK will give 300% and -300% of the return earned by the US consumer staples sector. Both funds will use the Russell 1000 Consumer Staples Index as their base index.

NEED achieves this exposure by investing partly in a consumer staples ETF. And getting the leveraged exposure through swaps. LACK will not hold any equities, rather it will only hold derivatives (swaps we presume) and some kind of collateral. Looking at Direxion’s other ETFs, the collateral is mostly money market products like Goldman Sach’s Financial Squares.

 

Analysis – this is all good fun

Leveraged and inverse are the strawberry vodka of ETFs. You have a tiny amount, rarely, and only on very specific occasions.

 

They’ve copped a lot of criticism, partly because people don’t understand how the daily resets work. Novice investors can be puzzled – and burnt investors infuriated – to learn that over the long term, the daily resets and roll mean that both the 3x bear and 3x bull deliver -50% returns or so and one does not hedge against the other. (See NUGT and DUST for an example).

But also because, for many, they look quite a lot like spread betting and ultimately gambling.

 

In defence of L&I products, they aren’t pretending to be anything they’re not. Going through the prospectus, Direxion says they’re for market timing and for professionals. Direxion’s popular educational videos on YouTube explicitly instruct that their line of products are not for buy-and-hold investors and that only experienced professionals should use them.

Furthermore, there is a sense in which they’re better than the alternative: trading on the margin. Speculating with borrowed money means investors risk losing more than all their money. Whereas with Direxion’s ETFs, you can “only” lose all your money.