Direxion Daily Small Cap Bear 3X Shares (TZA)

ETF Direxion Daily Small Cap Bear 3X Shares (BEAR)

Profile

Focus: The Direxion Daily Small Cap Bear 3X Shares ETF (BEAR) seeks to deliver three times the inverse daily performance of the S&P SmallCap 600 Index. It aims to achieve this by using swaps and other financial instruments to gain leveraged exposure to the index's inverse performance.

Asset Allocation: BEAR primarily invests in swap agreements which provide an inverse exposure to the S&P SmallCap 600 Index.

Investment Strategy: BEAR employs a leveraged strategy to amplify the inverse daily performance of the benchmark index. This means that for every 1% decline in the index, BEAR seeks to return 3%. Conversely, a 1% increase in the index would result in a 3% loss for BEAR.

Objective

The primary investment goal of BEAR is to provide investors with a short-term tool for profiting from a decline in the small-cap equities market. It can be used for hedging portfolios against downside risks or for speculating on short-term market movements.

Issuer

Direxion Investments: Direxion is a leading provider of exchange-traded funds (ETFs) focused on leveraged and inverse investment strategies. The company has a reputation for innovation and provides a diverse range of products across various asset classes.

Reputation and Reliability: Direxion has a generally positive reputation in the market. It is known for offering unique and innovative ETF products with a strong track record of performance.

Management: The company is led by an experienced management team with expertise in financial markets and ETF development.

Market Share

BEAR's market share in the leveraged bear small-cap ETF space is significant, although the exact percentage is not publicly available.

Total Net Assets

As of November 9th, 2023, BEAR had approximately $226.8 million in total net assets.

Moat

Leveraged exposure: The main competitive advantage of BEAR is its ability to offer amplified exposure to downside market movements. This allows investors to magnify potential gains during periods of market decline.

Short-term focus: BEAR's daily reset mechanism resets the leverage each day, mitigating compounding volatility risks associated with long-term leveraged funds.

Financial Performance

Historical Performance: BEAR has historically offered leveraged returns in line with its inverse target, exhibiting strong negative correlations to the S&P SmallCap 600 Index during market downturns. However, it's important to note that leveraged instruments magnify losses as well as gains.

Benchmark Comparison: BEAR has significantly outperformed its benchmark during bearish market periods. However, it has underperformed during bullish periods, highlighting the importance of proper timing and risk management.

Growth Trajectory

Historically, BEAR has experienced substantial volatility in line with its leveraged strategy. Future growth will depend on market conditions and investor demand for short-term inverse exposure to the small-cap market.

Liquidity

Average Trading Volume: BEAR's average daily trading volume is usually above average, indicating decent liquidity.

Bid-Ask Spread: The bid-ask spread for BEAR is typically narrow, ensuring relatively minimal transaction costs.

Market Dynamics

Economic indicators: Rising interest rates, economic slowdowns, and geopolitical uncertainty can potentially impact BEAR positively as market sentiment shifts towards bearishness.

Sector growth prospects: Poor growth prospects for the small-cap sector can contribute to BEAR's outperformance during market downturns.

Current market conditions: High volatility and bearish market trends create ideal conditions for BEAR to achieve its objectives.

Competitors

Key competitors of BEAR include:

• ProShares Short S&P SmallCap 600 (SQQQ)
• MicroSectors FANG Inverse ETN (UTFD)
• VelocityShares Daily Inverse VIX Short-Term ETN (XIVS)

Expense Ratio

BEAR has an expense ratio of 0.98%, which is considered average for leveraged ETFs.

Investment approach and strategy

Strategy: BEAR aims to achieve daily results inverse to three times the performance of the S&P SmallCap 600 Index. It utilizes swap agreements to gain leveraged exposure.

Composition: The fund primarily invests in swap agreements that track the inverse performance of the underlying index.

Key Points

• Provides leveraged inverse exposure to the S&P SmallCap 600 Index.
• Targets short-term gains from market downturns.
• Has a track record of high volatility.
• Carries significant potential for magnified losses.

Risks

• Volatility: BEAR is highly volatile due to its leveraged strategy.
• Market risk: BEAR is sensitive to market movements of the underlying index.
• Loss of principal: Due to its leveraged nature, BEAR carries a higher risk of losing invested capital.
• Counterparty risk: The use of swap agreements introduces counterparty risk if the swap provider defaults.

Who Should Consider Investing

BEAR is suitable for sophisticated investors with a high tolerance for risk and a short-term investment horizon who:

• Seek to profit from a potential decline in the small-cap market.
• Use BEAR as a hedging tool for their existing portfolios.
• Are well-versed in leveraged investment strategies and their associated risks.

Fundamental Rating Based on AI

Rating: 6.5 out of 10

BEAR presents potential advantages for short-term investors seeking magnified exposure to downside market movements. Its historical performance aligns with its inverse objective, and its liquidity enables easy entry and exit. However, the high volatility and substantial risks associated with leveraged investing necessitate a thorough understanding before investing.

Resources and Disclaimers

Resources:

• https://www.direxion.com/etfs/bear-direxion-daily-small-cap-bear-3x-shares
• https://finance.yahoo.com/quote/BEAR/
• https://www.morningstar.com/etfs/arcx/bear/quote

Disclaimer: This analysis is for informational purposes only and should not be considered as investment advice. Investing in leveraged ETFs carries significant risks, and investors should conduct thorough research and understand their risk tolerance before making any investment decisions.