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Leveraged ETFs: Pursuing Daily Targets in Volatile Markets

Summary

Important take aways:

  • If an investor purchases shares of a leveraged ETF at any other value than NAV during the day, the level of exposure will depend on the magnitude of the movement of the index.
  • If the movement is in favor of the fund, the level of exposure will be less than the funds stated daily exposure target (3x in the case of Direxion Shares).
  • If the movement is not in favor of the fund, the level of exposure will be greater than the funds stated daily exposure target (3x in the case of Direxion Shares).
  • Once the investor has purchased, that level of exposure is set until he or she sells that position or until the next portfolio rebalance at the end of the day.
  • Remember to watch INAV and understand exposure levels at the time of purchase.

Direxion Daily 3x ETFs are designed for sophisticated investors who:

  • Understand the risks associated with the use of leverage
  • Understand the consequences of seeking daily leveraged investment results
  • Intend to actively monitor and manage their investments

These funds are not suited for conservative investors who:

  • Cannot tolerate substantial losses in short periods of time
  • Are unfamiliar with the unique nature and performance characteristics of funds that seek leveraged daily investment results
  • Are long term investors who do not monitor their portfolios frequently
  

How to monitor intra-day NAV Values (INAV)

Investors should monitor the difference between the current market value of a Direxion Daily 3x ETF and its most recently calculated closing NAV in order to determine actual exposure levels at the time of purchase. The best way to understand an ETF's intra-day market value is to monitor a data point known as the 'INAV.'

The INAV is calculated by various data providers and can be accessed in real time throughout the trading day. The INAV is a very good indication of what a fund's actual NAV per share would be if it were calculated at that point in time.

The INAV can be accessed on various data systems and websites by typing "^[ETF symbol]-IV" into the quote request field. For example, to find the INAV for the Direxion Daily Technology Bull 3X Shares, type ^TYH-IV.

Investors can compare the INAV of an ETF to its most recently calculated NAV and calculate their expected exposure level prior to purchasing the fund. This will help set performance expectations properly.

There is no guarantee the funds will achieve their objective. An investor should consider the investment objectives, risks, charges, and expenses of Direxion Shares carefully before investing. The prospectus contains this and other information about Direxion Shares. To obtain a prospectus please visit www.direxionshares.com. The prospectus should be read carefully before investing.

The Russell Indexes noted herein are trademarks of Russell Investments and have been licensed for use by Direxion Shares. These funds are not sponsored, endorsed, sold or promoted by Russell Investments and Russell Investments makes no representation regarding the advisability of investing in the funds. MSCI indexes are the exclusive property of MSCI and its affiliates. All rights reserved. Indexes are unmanaged and cannot be invested in directly.

An investor should consider the investment objectives, risks, charges, and expenses of Direxion Shares carefully before investing. The prospectus and summary prospectus contain this and other information about Direxion Shares. Click here to obtain a prospectus and summary prospectus. The prospectus and summary prospectus should be read carefully before investing.

Investing in funds that invest in specific industries or geographic regions may be more volatile than investing in broadly diversified funds. The use of leverage by a fund means the Funds are riskier than alternative investments which do not use leverage.

The Leveraged ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investments. Leverage ETFs are not designed to track the underlying index over a longer period of time.

The risks associated with the funds are detailed in the prospectus which include adverse market condition risk, adviser's investment strategy risk, aggressive investment techniques risk, concentration risk, counterparty risk, credit and lower-quality debt securities risk, equity securities risk, currency exchange risk, daily correlation risk, daily rebalancing and market volatility risk, early close/trading halt risk, depository receipt risk, foreign and emerging markets securities risk, sector securities risk, interest rate risk, inverse correlation risk, leverage risk, market risk, non-diversification risk, retail sector risk, shorting risk, small and mid cap company risk, tracking error risk, market timing activity and high portfolio turnover risk, commodities securities risk, geographic concentration risk, valuation time risk, derivatives risk, risks of investing in small- and/or mid-capitalization companies, natural gas sector risk, negative implications of daily goals in volatile markets risk, risks of investing in mining and metal industry securities, commodity-linked derivatives risk, wholly-owned subsidiary risk, tax and distribution risk, options and futures contracts risks, security selection risk, Debt Instrument Risk, Gain Limitation Risk, Real Estate Investment Risk, U.S. Government Securities Risk, and Special Risks of Exchange-Traded Funds.

Distributor: Foreside Fund Services, LLC.