Tripling Down

Inverse funds and ETFs have made it easier than ever for investors to play the short end of the market. Even double and triple-leveraged funds have been around for a while, and recently Direxion has added another group to its ever growing stable as SeekingAlpha reports:

Direxion, the provider of revolutionary triple-leveraged exchange traded funds (ETFs), is out with a new set of funds. This time, they come with exposure to Treasuries.

These new funds allow investors to go three times long or short on 10-year and 30-year Treasury bonds, essentially making a bet on rates. The indexes give 300% the daily performance, or 300% the inverse, of the NYSE Current 10- and 30-year U.S. Treasury indexes.

The new funds are known as:

* Direxion Daily 10-Yr Treasury Bull 3x Shrs (TYD)
* Direxion Daily 30-Yr Treasury Bull 3x Shrs (TMF)
* Direxion Daily 10-Yr Treasury Bear 3x Shrs (TYO)
* Direxion Daily 30-Yr Treasury Bear 3x Shrs (TMV)

The current rate on a 10-year bond is 2.76%; on a 30-year, it’s 3.66%. Treasuries were mixed after Wednesday, and longer-term bonds saw their yields rise slightly, reports Nick Godt for MarketWatch. Signs of improvement in the economy, however slight, tend to decrease the appeal of U.S. government debt.

Adding to pressure on the debt is that foreigners sold another $97 billion in net U.S. assets in February, the second consecutive decline following a $146.9 billion drop in January.

Also, Direxion will be changing the name of all of its ETFs to include the word “daily,” to better reflect that these funds seek daily investment goals and should be used only as short-term trading vehicles. Leveraged ETFs have become more popular, and along with that has come attention. Leveraged and short ETF providers have done a great job of educating investors about these tools.

All of these leveraged instruments have the potential to turn an ordinary investor into a gambling fool. Caution is advised and, unless you know what you’re doing, you better stay away from these hot potatoes. Wild price swings in either direction can do a number on your psyche as well as on your portfolio value.

To me, these instruments are used best in combination with a hedge strategy. I am looking forward to these Treasury Bull and Bear ETFs to establish some volume and price pattern over the next few months, and I hope to find a use for these tools in combination with a hedged income generation appraoch.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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