Emerging markets showed strong growth momentum last year when
the developed economies like the U.S. and Europe were handling
their fiscal issues. However, growth in the first quarter of 2013
remained subdued as weak operations in Brazil, India and Russia
outweighed the decent growth in China (read: Time to Buy Emerging
Market ETFs?).
Some are growing more optimistic on these nations going forward
though, and are looking for new leveraged options in the
space. With this trend in mind, Direxion, best known for its huge
lineup of geared ETFs, plans to launch two emerging market
leveraged ETFs with triple exposure (3X) resetting on a daily
basis.
Both are the first bull ETFs to provide exposure of three times
their respective markets, with BRZU focusing in on Brazil, and KORU
honing in on stocks from South Korea.
Direxion Daily Brazil Bull 3X Shares (BRZU)
Brazil has been struggling in recent months due to slower GDP
growth rate and persistent inflation. However, with growth in
manufacturing, improving retail sales, increased consumer spending,
and a surge in domestic demand, the Brazilian economy appears to be
on the path to recovery.
The Brazilian economy is expected to grow 3.5% this year and 4%
in the next, as per the International Monetary Fund forecast (read:
Will Brazil ETFs Rebound in 2013?).
Additionally, the government is taking several steps to boost
growth in the country with tax cuts and cheap investments. It is
also seeking a flexible monetary policy that could lead to possible
interest rate hikes in order to tame inflation. The Brazilian
currency is also strengthening, signaling strong growth prospects
for the nation.
With this optimism, investors can now consider BRZU to make a
bullish bet on this emerging economy. The ETF looks to deliver
three times (300%) the daily performance of the MSCI Brazil 25-50
Index, before fees and expenses.
The product will create a leveraged long position in the
underlying index through the use of swaps, options, future
contracts and other financial instruments. The fund will be a
bit pricey though, charging 95 bps in fees per year.
In terms of exposure, financials take up the biggest chunk at
26% of the benchmark, followed by materials, and consumer staples.
Energy takes the fourth spot in the index, while the benchmark will
focus in on large and mid caps.
The new ETF looks to follow the same trend as the ultra-popular
MSCI Brazil Index Fund (EWZ),
which tracks the unleveraged performance of the same index (read:
Is It Time to Buy the Brazil ETF (EWZ)?). This means that if EWZ
moves up by 1%, then BRZU will move up by 3% and vice versa, at
least over a single trading session.
For comparison purposes, EWZ has lost 1.43% so far the year,
while it has seen a sluggish performance over the past two years,
losing about 30%.
Direxion Daily South Korea Bull 3X Shares
(KORU)
South Korea, Asia’s fourth largest economy and one of the most
stable in the region, is currently the center of the ongoing
political turmoil that has weighed heavily on investors. The
economy which has long been facing troubles from the Euro-zone
crisis due to poor exports has been made more vulnerable by the
rising won (read: Three Country ETFs Struggling in 2013).
This makes exports even more expensive, especially when compared
to Japanese goods which have seen a depreciating yen. This is
important as Japan often comes into direct competition with the
nation so its exports could be viewed as pricey by some
international buyers.
Still, South Korea remains a center of innovation and tech
prowess, and Korean ETFs are among the only options for investing
in the giant of Samsung. Furthermore, many might view the current
North Korean situation as overblown, suggesting that the country
could be bought on a dip here.
This is especially true given some of the growth prospects for
South Korea this year, and government predictions for growth. In
fact, the finance ministry of South Korea expects the economy to
demonstrate a mild recovery in 2013 and a very modest growth rate
of 2.3%.
In this environment, investors, who want to invest in the
country could find the new KORU an exciting pick. The ETF looks to
provide triple exposure to the daily performance of the MSCI Korea
25/50 Index (read: Is the Korea ETF About To Breakout?).
This fund will also create a leveraged long position in the
underlying index through the use of swaps, options, future
contracts and other financial instruments while charging 95 bps in
annual fees.
This ETF looks to move in the same trend with iShares MSCI South
Korea Index Fund (EWY), an ultra-popular fund which tracks the
unleveraged performance of the same index (see more in the Zacks
ETF Center). This means that if EWY moves up by 1%, then KORU will
move up by 3% and vice versa, at least over a single trading
session.
For comparison purposes, EWY lost 13% in the year-to-date
timeframe, while it has slumped by a similar amount over the past
two year period.
Can They Succeed?
With improvements in the U.S. equity markets and signs of
recovery in these two emerging markets, it would not be surprising
to see huge inflows in both these bull strategy ETFs. Being the
first two bull funds in the Brazilian and South Korean markets,
both will enjoy the first-mover advantage which could also help
these to succeed.
“We conduct market analysis and reviews on a constant basis in
order to identify new opportunities in various regions and sectors
for sophisticated investors who actively manage their trading
positions,” said Eric Falkeis, President of Direxion in a press
release.
“Brazil and South Korea are emerging markets with many
successful commodity, technology and automobile companies. Direxion
is allowing investors to not only obtain more surgical exposure to
these booming economies, but also to leverage their performance
through innovative investment products.”
However, investors should note that the leveraged ETFs involve a
great deal of risk when compared to traditional ETFs. These
products are only designed to match the performance of an index
over a single trading session, leading to possible deviations in
the long-term performance of these securities when compared to
unleveraged versions (read: Top 5 Leveraged Equity ETFs YTD).
Still, for traders looking to make bullish short-term bets on
South Korea or Brazil, the options have now greatly increased
thanks to Direxion. 3x leverage can be a powerful tool, so just be
careful with these interesting products that are targeting some of
the more volatile emerging markets out there.
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