DirexionShares announced this month it will close nine of its 3x leveraged ETFs. The affected funds target domestic sectors as well as certain emerging markets. Their shares will be de-listed from NYSE Arca as of the close on September 5, 2012, with the liquidation process to be completed a week later. Shareholders should dispose of their holdings prior to delisting because Direxion stated each fund’s liquidation value will reflect the costs of closing the fund.
The disappearing ETFs are:
- Direxion Daily Agribusiness Bull 3X Shares (COWL)
- Direxion Daily Agribusiness Bear 3X Shares (COWS)
- Direxion Daily Basic Materials Bear 3X Shares (MATS)
- Direxion Daily BRIC Bull 3X Shares (BRIL)
- Direxion Daily BRIC Bear 3X Shares (BRIS)
- Direxion Daily Healthcare Bear 3X Shares (SICK)
- Direxion Daily India Bear 3X Shares (INDZ)
- Direxion Daily Latin America Bear 3X Shares (LHB)
- Direxion Daily Retail Bear 3X Shares (RETS)
Direxion’s August 3 closure announcement (pdf) attributes the decision to “inability to attract sufficient investment assets.” This is no doubt true, but we can think of at least two other possibly influential factors. First, Direxion faces new competition in the 3x ETF space from the much larger ProShares. Second, Direxion’s aggressively leveraged, trader-focused menu is the subject of much misunderstanding, regulatory scrutiny, and litigation. The same is true for ProShares, but the latter has deeper pockets.
Eight of the nine funds are on ETF Deathwatch, and the ninth was on a path to be added in September. These closures mark a continued consolidation of the ETF universe. Niche providers still have a place at the table but may not be able to subsidize smaller products as competition for assets grows.
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.