A New Defensive Tool From Direxion?

Direxion ETFs are mostly known for 3X levered long and 3X levered short funds on indexes ranging from very broad to very narrow. I've never used Direxion funds personally or for clients but have never been opposed to levered products in that there is a way to use them effectively and of course used incorrectly, bad things will follow. The idea that something could be risky or have bad outcomes when used improperly is not a reason to ban the funds, some have talked about suitability paperwork for them along the lines of options paperwork. I don't know where the company stands on that but it seems reasonable.

Direxion also has a suite of what it calls Relative Weight ETFs. There are ten of them and the big idea is that they are long/short funds; long 150% and short 50% and they come in pairs like long domestic equities versus short foreign equities or long foreign and short domestic. There are also funds for large cap versus small cap, growth versus value and large cap versus small cap. Those four pairs, so eight out of the ten funds in the suite, require a little bit of guesswork. Value has underperformed growth for a very long time relative to past cycles. This week's Barron's included someone's guess that value would now start to outperform. Will that happen? I don't know, neither does anyone else. That person could be right but who knows? And large cap versus small cap, here they are for the last ten years and while there clearly has been performance dispersion along the way, I would say the correlation is so tight that I'm not sure there's much benefit to shorting one versus the other.

If someone was looking for a liquid alternative type of return then maybe that could make sense but this is not a strategy I would look to for an alternative.

The one pairing that is interesting to me is (pro) cyclical stocks versus defensive stocks; Direxion MSCI USA Cyclicals Over Defensives ETF (RWCD) and Direxion MSCI USA Defensives Over Cyclicals ETF (RWDC). It is very small with only $13 million in AUM and the expense ratio is 0.45% which seems cheap for shorting stocks. Here's the chart of a pivotal six-month window in 2019 compared to the S&P 500 Index.

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