Direxion Adds Leverage To Market Vectors Gold Miners (GDX)

December 10, 2010 by  
Filed under Commentary, ETF IPOs (New ETFs), ETFs

Stocks in the gold mining industry are among the most volatile stocks being traded.  ETFs tracking them are also volatile.  As of Wednesday (12/08/2010), traders can now get leveraged long and short access to this group via Direxion Daily Gold Miners Bull 2x Shares (NUGT) and Direxion Daily Gold Miners Bear 2x Shares (DUST).

Both funds are getting their market exposure from either buying or shorting Market Vectors Gold Miners ETF (GDX).  So, if you really want to know what exposure you are getting with these new ETFs, then a visit to Van Eck Global’s GDX overview page is the place to go.

There you will learn the largest constituents of the underlying NYSE Arca GoldMiners Index and of GDX are Barrick Gold Corp (ABX) 17.1%, Goldcorp Inc (GG) 11.1%, Newmont Mining Corp (NEM) 9.6%, Silver Wheaton Corp (SLW) 6.2%, and Anglo Ashanti Ltd (AU) 5.7%.  The largest country weights are Canada 62.1%, US 15.1%, South Africa 13.5%, and Peru 4.8%.

The links to the NUGT overview and DUST overview don’t provide very much information, nor does the combined fact sheet (pdf).  To find the expense ratio, one must go to the Direxion Funds at a Glance section, from there select “performance”, and then scroll down to NUGT/DUST.  There in the far right hand column you will find that expenses are capped at 0.95%.

However, there is no indication as to whether the stated expense ratio includes the “acquired fund” expenses of 0.53% for GDX.  The prospectus does not address acquired fund fees either.  Since NUGT is buying GDX directly, perhaps as much as $2 of GDX for every $1 of NUGT, then acquired fund fees could be as high as 1.06%.

Direxion needs to provide clarification regarding the fees associated with these new ETFs.  However, even if the total expense ratio of NUGT turns out to be 2.01%, traders will likely still embrace it as it has the exposure and volatility they crave.

Disclosure covering writer, editor, and publisher:  No positions in any of the securities mentioned.  No positions in any of the companies or ETF sponsors mentioned.  No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.

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