ETFs That Magnify Are Warm (Mostly re a triple ETF based on Russel 2000)

Wall Street Journal ^ | 1/20/08 | IAN SALISBURY

[Golddigger3]

'Leveraged' and 'Inverse' Funds Draw Dollars at Direxion . . .

At a time when launches of exchange-traded funds have all but halted . . . Direxion Funds has a hit.

In little more than two months, Direxion's family of "leveraged" and "inverse" ETFs, which help investors magnify bets or bet against certain sectors of the stock market, have picked up hundreds of millions of dollars in assets and trade millions of shares a day, even as criticism continues to dog that class of ETF.

Talk of the Town

The funds "have gotten extremely fast pick-up in terms of trading and people talking about them," says Soren MacBeth, who runs the Web site StockTwits.com, which collects Twitter posts about investing.

Mr. MacBeth says after just a few weeks the Direxion funds have regularly cropped up among the 10 most discussed stocks on his Web site on any given day. Exchange-traded funds resemble open-end mutual funds but trade on an exchange like a stock. Direxion's largest ETF, Large Cap Bull 3X Shares, which aims to offer investors a return equal to three times each day's percentage-point change in the Russell 1000 stock index, has $237 million in assets and average daily trading volume of 8.2 million shares, according to fund researcher Morningstar Inc.

The new funds compete with one of the most successful -- and most controversial -- ETF fund families: ProShares, part of the ProFunds Group.

The ProShares funds, which magnify returns by no more than two times, have collected more than $20 billion in assets since hitting the market in 2006. Moreover, ProShares' 0.95% expense ratio is high for an ETF. Direxion's expense ratio is almost identical.

The success of so-called leveraged and inverse ETFs has come despite criticism . . .

Shorting-Ban Impact . . .

[demsux]

I use these things to hedge against my long positions...right now, I'm using SRS to bet against the REITS.

BUT, I monitor the ETFs constantly and get in and out (for $7/trade) when conditions change.

[Ron Jeremy]

Be careful. these are crap. You will take the 3X hit when it goes against you, but not get the full 3X benefit when it goes with you. To prove this, just look at the historical returns of these vs. their indexes. Google ETF’s and the constant leverage problem.

[demsux]

Yeah, there was an article about that yesterday on Marketwatch.

That's why I'm in and out of them as conditions dictate and not in them for the long haul.

[demsux]

Here's the article...makes good sense.

http://www.marketwatch.com/news/story/Leveraged-inverse-ETFs-short-term/story.aspx?guid=%7B7BD723A4%2DC1C2%2D4302%2DBD49%2DEE8B8EBB3AA0%7D