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If you want to maximize the return
from making a wise investment in an ETF, then you soon may love
the leveraged funds that Direxion has rolled out.
Direxion launched eight ETFs during November 2008 that are
leveraged to help both bullish and bearish investors triple the
daily performance of the four indexes that they combine to
track. The chance to earn a return that is three times the
performance of an index could be especially enticing if you are
confident about where the market is heading next. These ETFs not
only are intended to triple an investor's exposure to the market
on the upside, but also on the downside.
These triple-leveraged investments are capable of extreme
volatility, so they are not the place to put the college money
for your kids and forget about it until they are mailing in
their applications.
As a result, you'll want to be careful to limit how much of your
hard-earned dollars you plan to invest. However, these types of
funds may interest aggressive investors who don't mind taking a
risk with a small portion of their savings.
Leveraged long Direxion ETFs
seek to triple the daily performance of an underlying index,
such as the Russell 1000. In contrast, Direxion's leveraged
short ETFs try to triple the daily inverse performance of an
underlying index. In short, if the index performs well, the
long ETF is designed to magnify that performance. If the
index does poorly, the long ETF is supposed to triple the
losses.
Direxion has created two funds for investors to go either
long or short in the Russell 1000. The first is Direxion
Daily Large Cap Bull 3X Shares (BGU), which seeks daily
investment results that are 300% of the price performance of
the Russell 1000 Index.
That particular index measures the performance of the
large-cap segment of the U.S. equity universe. The fund has
$267.8 million in assets and an average daily trading volume
of 11 million shares.
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The counterpart is the
Direxion Daily Large Cap Bear 3X Shares (BGZ), which seeks
to replicate, net of expenses, 300% of the inverse daily
performance of the Russell 1000 Index. The fund, with $370
million in assets and average daily trading volume of 12.8
million shares, invests at least 80% of assets in securities
that comprise the index.
The volume and liquidity
offered by the funds add to their appeal. By the end of
November 2008 -- only one month after trading began -- the
eight funds had accumulated a total of more than $510
million assets. That is fast growth.
Leveraged funds, when used in hedging, may lower your risk
portfolio. Of course, you must be able to accept the risks
that come with leveraged funds. One potential risk arises
from the tracking error between the funds and their
underlying index.
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Especially during times of
high volatility in the market, an investor cannot expect the
funds to triple the performance of the index, either going
long or short. It is yet another reason to use such funds as
short-term trading tools rather than to buy and hold.
These funds can be deployed in
three key ways:
1. You can place small, short-term bets when the markets are
volatile.
2. When the market takes off and you find yourself left
behind, these ETFs can help you to catch up.
3. You also can use the funds as hedging tools.
But you must remember that the key to using these leveraged
ETFs (or any other funds) is knowing which ones to buy and
most importantly, when to use them to invest profitably.
Why is timing important? Because a good trader needs to know
what direction the markets, sectors, and stocks are moving.
And that's exactly what my timing system, the Fabian Wave
system, combined with the beauty of ETFs, does.
It allows me to select the best funds that are set to
deliver great profits... now! In essence it allows you to work
smarter, not harder, to get your returns back where you want
them -- making double-digit profits hand-over-fist.
If you want my advice about which ETFs to trade and when, I
urge you to check out my weekly trading service, ETF Trader
by
clicking here.
Sincerely,
--
Doug Fabian
Editor
ETF
Trader
P.S. Since I started using my supercharged timing system to
trade ETFs the profits have been non-stop. In fact, my
service was ranked in the top 10 out of 186 publications by
The Hulbert Financial Digest in 2008. We were up +11.5% for
the year, while the Dow was down -33.4%. I just issued a buy
signal for my latest high-profit ETF that I'd love to share
with you.
Click here to get all the details right now, in time to
start profiting by tomorrow morning!
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