Short European financials with Direxion’s latest inverse ETF

Aug 15th, 2016 | By | Category: Alternatives / Multi-Asset

Inverse and leveraged exchange-traded fund provider Direxion has launched a new US-listed ETF allowing investors to gain bearish exposure to the equities of European financial firms. The Direxion Daily European Financials Bear 1X Shares (NYSE Arca: EUFS) provides tactical managers with a hedge against, or allows speculators to potentially profit from, further declines in the MSCI Europe Financials Index. The European financial sector has been hard hit thus far this year as low growth, negative interest rates and stock market volatility have weighed heavily on share prices.

Short European financials with Direxion’s latest inverse ETF

Sylvia Jablonski, Managing Director at Direxion.

The inverse financials ETF may appeal to investors seeking to profit from volatility surrounding Europe’s financial sector following Britain’s decision to leave the European Union. By offering inverse the daily performance of the MSCI Europe Financials Index, investors receive bearish exposure to a broad market cap-weighted representation of large- and mid-cap companies across developed market countries in Europe that have been designated as operating within the financials sector according to the Global Industry Classification Standards(GICS).

The fund joins the recently launched Direxion Daily European Financials Bull 2X Shares (NYSE Arca: EUFL) which provides 200% of the daily performance of the MSCI Europe Financials Index.

“Our new European Financials Bear ETF will complement our recently launched leveraged ETF tracking that space, giving traders another option for taking advantage of short-term opportunities,” commented Sylvia Jablonski, Managing Director at Direxion. “We think EUFS is coming to market at the right time as European banks face the challenges of troubling stress tests, risks associated with contagion, and the aftermath of Brexit.”

As of 29 July 2016 the MSCI Europe Financials Index consisted of 98 constituents with an average market capitalization of $14.9bn. The largest country exposures are to the UK (31.1%), France (13.3%), Switzerland (12.0%), Germany (11.8%) and Spain (8.8%) while the largest constituents in the index are HSBC (8.9%), Allianz (4.5%), Banco Santander (4.2%) and BNP Paribas (3.6%).

Year-to-date (29 July 2016) the index is down 17.3%.

The fund has a net expense ratio of 0.45% due to a cap on management fees in place until September 2017. The fund’s gross expense ratio is 0.58%.

Inverse and leveraged ETFs are intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions. While these funds may provide an efficient means for sophisticated traders to obtain tactical exposures, they are generally considered unsuitable for retail investors who may not fully understand the risks involved, such as the potential for considerable losses in volatile but range bound markets if the fund is held for an extended period.

UK-based investors wishing to establish an inverse or leveraged exposure to European financial firms may wish to consider products offered by Boost ETP. The Boost Euro STOXX Banks 3x Short Daily ETP (Borsa Italiana: 3BAS) and the Boost Euro STOXX Banks 3x Leverage Daily ETP (Borsa Italiana: 3BAL) provide triple the short and triple the long daily performance of the Euro STOXX Banks Index. The ETPs are offered with annual management fees of 0.89%.

The Euro STOXX Banks Index tracks the performance of the largest banking stocks in the eurozone. As of 29 July 2016 the index has significant country exposure to Spain (32.3%), France (24.9%), Italy (15.5%), and the Netherlands (12.1%). The largest constituents are Banco Santander (15.5%), BNP Paribas (14.1%), ING Groep (11.5%) and Banco Bilbao (9.6%). The index is down 26.5% year-to-date.

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