FAS and the Furious: The Rise of the 3x or Triple Leveraged ETF
The rally from the March lows has been notable for a number of reasons. For one, Morgan Stanley remarked in a note to clients that the advance had been the steepest since 1938.
For ETF traders, however, the March rally will also be known as the one that vaulted the Direxion Financial Bull 3x Shares ETF
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This is an incredible milestone for an ETF that has only been on the market since November 2008. The Direxion Financial Bull 3x Shares are a leveraged fund, which tracks the Russell 1000 Financial Services Index. More specifically, FAS is designed to return three times the daily return of this index, which includes among its holdings financial companies such as JP Morgan Chase & Co.
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This last point is especially important. In the same way that many ETF investors have been confused about the performance of 2x leveraged ETFs over extended periods, so have some of those looking for 300% investment returns from triple leveraged ETFs like the FAS found the funds not to deliver as expected.
But here the fault is more likely with the trader than the instrument traded. Again, leveraged ETF products like those offered by Direxion seek to replicate DAILY returns. And while Direxion has announced plans for leveraged ETFs that will seek to provide 3x returns on a monthly basis, the current crop of leveraged ETFs – including FAS – are built to provide daily leveraged exposure and, as such, are better suited for short-term traders.
FAS has been among the ETFs of choice for traders looking to take maximum advantage of the powerful rally in financial stocks over the past month. With its 300% daily return pledge and exposure to a variety of financial stocks – from Bank of America
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For more information about the Direxion exchange-traded funds, visit their website at DirexionFunds.com
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David Penn is Editor in Chief at TradingMarkets.com.