How Direxion Differentiates Itself with Leveraged Funds

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.
Man counting money

Alternative investments are those outside of the three traditional asset classes: stocks, bonds or cash. Such alternative investments also can give diversity to your portfolio, as well as provide a safe haven during a crisis similar to the one in 2008, where stocks plummeted but interest rates were too low to make most bonds or other interest-bearing investments attractive. A notable provider of alternative investment exchange-traded funds (ETFs) is Direxion.

Direxion is an investment firm that was founded in 1997 as a mutual fund provider. It now offers more than 50 alternative ETFs, mostly of the leveraged variety. For example, these funds are designed to be able to triple, earn the inverse of, or earn triple the inverse of the relevant index in the course of a single day. This sort of investing is the complete opposite of the trend-following, long-term approach we take in Successful Investing. But if you are interested in trading aggressively and frequently, with a willingness to monitor your investments daily, Direxion’s ETFs can be used to potentially make — or lose — a lot of money quite quickly.

Direxion also offers a few long-term ETFs. But its focus is to tap alternative strategies, not to offer routine sector or geographic plays. One of its funds is the Direxion All Cap Insider Sentiment Shares (KNOW), which examines the S&P 1500 to find the stocks that insiders are buying. KNOW has achieved a gain of 1.96% so far in 2014, following a relatively steady upward trend compared to the S&P 500 this year. Last year, the fund rose 34.69%. KNOW also offers a 1.07% yield.

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Direxion’s leveraged and inverse ETFs are not intended for an investor who can’t weather losses. However, if you have additional investment income you’re willing to risk on pure speculation, Direxion is one way you can get a decisive investment result in a very brief period.

If you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an e-mail. You may see your question answered in a future ETF Talk.

In case you missed them, I encourage you to read my articles from previous weeks about ETF providers Fidelity, Charles Schwab, Guggenheim, PowerShares, WisdomTree, First Trust, ProSharesVanguard, iShares and State Street. I also invite you to share your thoughts below.

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Conventional wisdom says that the reduction in bond buying from the Fed should have caused interest rates to rise. However, this just hasn’t happened yet.

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