Direxion, the Newton, Mass.-based firm known for its geared ETFs, today is launching two triple-leveraged single-country ETFs—one focused on Brazil, the other on South Korea—that are part of an extensive lineup the firm first put in registration in 2010.
The Direxion Daily Brazil Bull 3X Shares (NYSEArca:BRZU) will serve up three times the daily performance of the MSCI Brazil Index, a free-float-adjusted market capitalization weighted index comprising primarily Brazil’s large and midcap names—the same benchmark anchoring the $7.5 billion iShares MSCI Brazil Index Fund (EWZ).
BRZU will have an annual expense ratio of 1 percent, or $100 for each $10,000 invested, which includes a 0.75 percent management fee, according to the most recent prospectus .
Similarly, the Direxion Daily South Korea Bull 3X Shares (NYSEArca:KORU) will serve up triple exposure to the daily performance of the MSCI Korea Index, the same benchmark that the $2.65 billion iShares MSCI South Korea Index Fund (EWY) tracks. KORU, too, will have a net annual expense ratio of 1 percent a year.
At the time of Direxion’s massive 2010 filing that detailed plans for some 36 funds, including 17 bull-and-bear triple-exposure pairs that rebalance daily and are focused largely on Asian and emerging market countries, commodities and energy, the company said it would be rolling out the strategies when they thought the time was right for the funds.
Interestingly, Brazil ETFs have struggled in recent months as the country’s GDP growth has failed to live up to the promise of outsized emerging-market performance relative to developed-world markets.
The big iShares fund, EWZ, has lost about 2 percent of its value year-to-date as investors yanked out more than $1.61 billion from the fund. The ETF’s losses come in at 13.4 percent in the past year.
South Korea, meanwhile, has been in the center of a debate regarding whether the country belongs in the emerging markets basket or among developed economies. Last June, MSCI decided to keep South Korea labeled as emerging, but FTSE has long held the country among its developed markets.
Either way, since the beginning of the year, EWY has slipped 12.4 percent despite net asset inflows of $53.5 million, trading at its lowest level in 18 months.
The new ETFs will join similarly designed Direxion products, such as the $75 million Direxion Daily China Bull 3X Shares (YINN), which first came to market in December 2009, and the $17 million Direxion Daily Russia Bull 3X Shares (RUSL), launched in May 2011.
All of these leveraged ETFs have matching bear funds, and BRZU and KORU fit that bill as well, though their triple-inverse counterparts are currently sitting in the registration pipeline.
In the latest prospectus, Direxion laid out some of the risks of investing in leveraged and inverse funds.
“The fund is different and much riskier than most exchange-traded funds,” Direxion warned in its prospectus about each of the funds, as it pointed to the effect of daily rebalancing and the compounding of daily returns overtime.
“The fund will lose money if the index performance is flat over time, and as a result of daily rebalancing, the index’s volatility and the effects of compounding, it is even possible that the fund will lose money over time while the index’s performance increases,” the firm said in the filing.
Direxion is the 15 th -largest fund provider in the U.S. today in terms of assets, with some $5.65 billion of assets under management.
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