Direxion launched tree Volatility Response ETF’s

Jan 12 2012

ETP: 12.01.2012

On January 11, 2012 Direxion, announce that it has launched three exchange-traded funds that seek to better control risk in equity investments.

These indices follow a rules-based investment approach that uses volatility as a gauge to determine equity exposure. They operate according to the principle that exposure to equities should be reduced during periods of higher overall market volatility, and increased during periods of a more stable (lower volatility) market environment. Each Fund has a target volatility level for its corresponding index. When volatility moves above those levels, the Funds will increase their exposure to U.S. Treasuries and decrease their exposure to equities. The Funds will proportionately increase exposure to equities during periods of low market volatility. The Funds track the following indices in the newly launched S&P Dynamic Rebalancing Risk Control Index Series.

The Direxion S&P 500 RC Volatility Response Shares (Ticker: VSPY), Seek to track the S&P 500 Dynamic Rebalancing Risk Control Index with a Volatility level target of 15%

Direxion S&P 1500 RC Volatility Response Shares (Ticker: VSPR), Seek to track the S&P Composite 1500 Dynamic Rebalancing Risk Control Index with a Volatility level target of 15%

and Direxion S&P Latin America 40 RC Volatility Response Shares (Ticker: VLAT), Seek to track the S&P Latin America 40 Dynamic Rebalancing Risk Control Index with a Volatility level target of 18%

The Funds are structured so that adjustments can be made quickly and frequently, even on a daily basis, as the methodology dictates. The volatility levels of the corresponding indices are monitored daily, and equity/U.S. Treasury Bills exposure allocations are rebalanced on a monthly basis, at minimum.

All three funds have a total annual expense ratio of 0.45 percent, due to a 0.24 percent fee waiver in place until until April 1, 2013.

These intelligent second generation beta product, essentially allow an investor low cost regime dependent market exposure, and this may be the exact answer in this risk-on risk-off market, with increased correlation across assets. It will be interesting to monitor the performance, against their benchmark.