A Small Fund That Bets Big

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

The Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN), with just $43.43 million in assets under management, is a relatively small exchange-traded fund (ETF) in the aerospace and defense sector compared to many peer funds, but it also is triple-leveraged for those seeking to bet big.

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DFEN tracks the Dow Jones U.S. Select Aerospace and Defense Index. Unlike many other ETFs, however, DFEN’s objective is to obtain 300% of the return of that index through high leverage, but only for a single day.

Investors should not expect DFEN to provide such a high return for periods greater than a day. Unleveraged exposure to the same index can be found in the iShares Dow Jones US Aerospace & Def ETF (ITA), which is another popular fund in the aerospace and defense field.

DFEN had a very high relative trading volume of 57,430 shares on average for the past three months with its total $43.43 million in assets. To put it in perspective, PowerShares Aerospace and Defense (PPA), the fund covered in last week’s ETF Talk, boasts total assets of more than $800 million but had a relatively modest daily trading volume of 92,256 shares on average for the past three months.

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In the DFEN fund manager’s own words, the ETF is designed to take advantage of short-term trends while letting its investors stay liquid. Moreover, DFEN is designed for trading more than investing, which matches the goal of the fund — to seek high short-term returns that likely are not sustainable in the long run.

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DFEN has an expense ratio of 1.09%, which is higher than some of its peer funds such as PPA and its 0.64% expense ratio. Due to the fund’s day-trading nature, analysts have recommended that interested investors pay more attention to the trading volume and bid/ask pricing rather than the expense ratio.

Launched on May 3, 2017, DFEN is a newcomer to the aerospace and defense field. However, its price has increased by more than 66% in a span of just five months, indicating that DFEN’s strategy has so far paid off handsomely. For comparison, the S&P 500 returned 6.63% over the last six months.

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The top five holdings are The Boeing Company (BA), 10.14%; United Technologies (UTX), 7.87%; Lockheed Martin (LMT), 7.37%; General Dynamics (GD), 6.40%; and Raytheon Company (RTN), 6.19%.

For those seeking high potential returns in the aerospace and defense segment, I encourage you to look into Direxion Daily Aerospace & Defense Bull 3X Shares ETF (DFEN).

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

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