Tag Archives: inverse ETFs

New ETFs Leverage Natural Gas, Retail Sectors

If you want to leverage a bet on natural gas or the retail sector, Direxion’s new ETFs will help you achieve that goal. On Wednesday, the Boston firm launched four new new leveraged ETFs, bringing its total to 38.

The Direxion Daily Natural Gas Related Bull 2X Shares (FCGL) seeks to produce 200% of the daily performance of the ISE-REVERE Natural Gas Index. The index tracks companies that derive a substantial portion of their revenues from the exploration and production of natural gas. Oil and gas exploration and production make up 72.1% of the index, while integrated oil and gas comprise 24.3%, with 3.5% in gas utilities. The Direxion Daily Natural Gas Related Bear 2X Shares (FCGS) seeks to produce twice the inverse return of the index.

The Direxion Daily Retail Bull 2X Shares (RETL) seeks to double the returns of the Russell 1000 RGS Retail Index, while the Direxion Daily Retail Bear 2X Shares (RETS) gives negative 200% return of the same index. The Russell 1000 RGS Retail Index contains constituents of the Russell 1000 Index that are classified within the Retail subsector of the Russell Global Sector Scheme.

The funds all have an expense ratio of 0.95%.

Goldman Talks About Rydex Closing 12 Funds

Rydex|SGI announced last Friday that it will close 12 of its 14 leveraged and inverse ETFs. Inverse ETFs essentially short an index and try to earn the negative return of the index it tracks. Leveraged ETFs seek to provide 200% or 300% of an index’s daily return or negative return.

“The premium reason is they hadn’t garnered a significant amount of investor interest,” said Richard Goldman, the chief executive officer of Rydex|SGI, in an interview with ETFsForTheLongRun. “It was a small percentage of the ETF assets under management.”

Including the affected funds, the Rockville, Md., firm offers a lineup of 40 exchange traded products (ETPs). The 12 funds held approximately $129 million in assets, or less than 2% of Rydex|SGI’s total $7 billion in ETF assets under management. Typically, an ETF needs $50 million in assets to remain viable. The ETP division represents 29% of Rydex’s total $24 billion under management. Closing these funds will allow Rydex to focus resources on the products with the most demand.

The consolidation is a bit of an ego bruise for Rydex as it invented the leveraged and inverse mutual fund. Even though Rydex was an early entrant in the ETF market, launching its first fund in 2003, Goldman acknowledged it had lost the first mover advantage on the inverse and leveraged funds. Because ETFs are sold on the stock exchange and not through financial advisors like mutual funds, there’s little need for replicating another fund’s strategy. Thus the first fund to track a market typically garners the most name recognition and hence, assets. ProShares, the market leader, launched its first inverse and leveraged ETFs in 2006. Direxion is the other main player in this space.

“I won’t say universally we’re getting out of the leveraged and inverse business,” said Goldman. “We leaving options open and won’t constrain ourselves to not participate in that space. The overall leveraged ETF business is still strong and there’s not a lot of degredation in the asset base.”

Goldman said that Rydex’s recent purchase by Guggenheim Partners had nothing to do with the closing of the funds, or problems at the firm. He said almost all the Rydex products had strong positive net inflows in 2009 and that total ETP assets grew about 30%. Rydex mutual funds also saw net cash inflows for the year, with tremendous growth in alternative investment strategies packaged as mutual funds, fundamental alpha strategies and fixed income formats.

The CEO added that he doesn’t believe Guggenheim has plans to merge Rydex with Claymore, the ETF firm Guggenheim bought last year. “We’re committed to growing our franchise and it’s an important growing piece of the business.”

Friday, May 21, will be the last day of trading on NYSE Arca for the following 12 funds.

Rydex 2x Russell 2000 ETF (RRY)
Rydex 2x S&P MidCap 400 ETF (RMM)
Rydex Inverse 2x Russell 2000 ETF (RRZ)
Rydex Inverse 2x S&P MidCap 400 ETF (RMS)
Rydex 2x S&P Select Sector Energy ETF (REA)
Rydex 2x S&P Select Sector Financial ETF (RFL)
Rydex 2x S&P Select Sector Health Care ETF (RHM)
Rydex 2x S&P Select Sector Technology ETF (RTG)
Rydex Inverse 2x Select Sector Energy ETF (REC)
Rydex Inverse 2x Select Sector Financial ETF (RFN)
Rydex Inverse 2x Select Sector Health Care ETF (RHO)
Rydex Inverse 2x Select Sector Technology ETF (RTW)

Between the close of trading on May 21, and May 28, the affected funds will liquidate their portfolio assets. Shares still held on May 28 will be redeemed automatically. Investors will receive a cash distribution equal to the net asset value of their shares as of the close of trading May 28. This amount includes any accrued capital gains and dividends, minus the costs to close the fund.

Leveraged, Inverse ETFs to Track Biotech

ProShares launched the first ETFs with leveraged and inverse exposure to the biotechnology sector Thursday on the Nasdaq Stock Market.

The Ultra Nasdaq Biotechnology (BIB) seeks to provide 200% of the daily return of the Nasdaq Biotechnology Index for a single day. The UltraShort Nasdaq Biotechnology (BIS) tries to return a negative 200% of the index.

According to Bloomberg, the Nasdaq Biotechnology Index is the most widely used benchmark for U.S. biotechnology stocks based average daily dollar volume. The index contains Nasdaq-listed companies classified according to the industry classification benchmark as either biotechnology or pharmaceuticals and calculated under a modified capitalization-weighted methodology. For a full list of companies in the index.

Since ProShares introduced the first leveraged and inverse ETFs in the U.S. in 2006, they have been the leading manager in the space, according to Lipper.

A good caveat to remember: due to the compounding of daily returns, the returns of leveraged and inverse ETFs over periods longer than one day will likely differ in amount and possibly direction from the target return for the same index over the same period. These are not buy-and hold investments. Investors need to monitor their holdings on a daily basis.

You’re Invited to the Global ETF Awards

The Global ETF Awards Conference will be held next Thursday, April 30, in New York City at the Grand Hyatt Hotel. It’s sponsored by ExchangeTradedFunds.com.

I encourage all of you to attend this event. It’s the only conference that deals with U.S. and international issues in the ETF industry. This year it will concentrate on how regulatory changes will affect the industry. Because this conference receives the most attendees from Europe and Asia, it’s a great place to meet all the big players and firms in the industry.

It’s also easy to fit into your schedule. It runs only one day. The conference consists of a half day of workshops then the Awards dinner afterwards.

Some of this year’s workshops include:
· How and when to use leveraged ETFs and ETF Options
· Global ETF, ETN and ETC Product Developments-new ideas and trends
· Markets in crises-the impact on indices

Finally, the awards ceremony is unique on Wall Street in that the awards are not given by an outside body, but much like the film industry’s Academy Awards, the ETF industry votes on itself. So, this is a chance to see what the guys who run the ETF industry think are the most innovative products in the space right now.

I have attended the last two years. It’s very informative and a lot of fun, I encourage you all to go.