Fascination With Triple Levered ETFs Ends: Direxion Closing Nine 3x ETFs Due To Lack Of Interest

Tyler Durden's picture

It was fun (not really) while it lasted, but America's habitual gamblers have finally grown tired of the theta sucking monsters known as uber-levered ETFs. End result: Direxion is announcing it is closing nine 3X levered ETFs.

From Direxion:

The Board of Trustees of the Direxion Shares ETF Trust has decided to liquidate and shutter nine exchange-traded funds ("Funds") based on the recommendation of Rafferty Asset Management, LLC, the Trust's advisor.

 

Due to the Funds' inability to attract sufficient investment assets, Rafferty believes they cannot continue to conduct their business and operations in an economically efficient manner. As a result, the Board concluded that liquidating and shuttering the Funds would be in the best interests of the Funds and their shareholders.

 

The Trust will close the following Funds: Direxion Daily Agribusiness Bull 3X Shares (COWL), Direxion Daily Agribusiness Bear 3X Shares (COWS), Direxion Daily Basic Materials Bear 3X Shares (MATS), Direxion Daily BRIC Bull 3X Shares (BRIL), Direxion Daily BRIC Bear 3X Shares (BRIS), Direxion Daily Healthcare Bear 3X Shares (SICK), Direxion Daily India Bear 3X Shares (INDZ), Direxion Daily Latin America Bear 3X Shares (LHB) and Direxion Daily Retail Bear 3X Shares (RETS).

And to think they all had such memorable names...

What happens next:

Shares of the Funds will stop trading on the NYSE Arca, Inc., and will no longer be open to purchase by investors, at the close of regular trading on September 5, 2012. Shareholders may sell their holdings in the Funds prior to the closing date, and those transactions are subject to customary brokerage charges. Between the closing date and the liquidation date, shareholders may only be able to sell their shares to certain broker-dealers and there is no assurance that there will be a market for the Funds during that time period.

 

On September 12, 2012, the Funds will liquidate their assets and distribute cash pro rata to shareholders who have not previously redeemed or exchanged their shares. These payments are taxable and will include any accrued capital gains and dividends. Each Fund's net asset value will reflect the costs of closing the Fund as calculated on the liquidation date. The Funds will close when the distributions are complete.

 

The process of closing down and liquidating the Funds' portfolios, scheduled to take place between September 5, 2012 and September 12, 2012, will result in the Funds not tracking their underlying indexes and experiencing an increase in cash holdings. These developments may not be consistent with each Fund's investment objective and strategy.

Following the disappearance of 3x ETFs as an asset class we will see the exit stage left of 2x levered ETFs, then unlevered ETFs, especially if key ETF market maker Knight folds, then finally single name stocks, as nobody is left to trade anything or hold the bag, and as no incremental capital remains to be "invested" into the stock market by the greater fool.

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JLee2027's picture

When is 1,000,000 Levereged SLV Closing?

flacon's picture

How about DUST and NUGT? LOL!

francis_sawyer's picture

It's easy to assume that there are more PHYSICAL ounces of paper stacked against PHYSICAL ounces of silver as we speak...

~~~

So... all you 'market' homos... Step up to the plate & make your bets... Go ahead... Be BRAVE... I'm on the edge of my seat to see how it's going to turn out...

Tippoo Sultan's picture

Hell, even Cramer railed against the triple-stupid/levered ETF complex.

"We therefore commit these bodies to the deep..."

Grinder74's picture

Wait, Osama bin Laden was tripled-levered?

Thomas's picture

The only thing 3x levered were the losses. All those levered funds are dogs. I like the part about capital gains, like there will be a ton of those. Yet another group of investors gets a deracination.

veyron's picture

They are designed to melt down. Retail can't short, so only a handful of players can profit from the death.

MillionDollarBoner_'s picture

Be interesting to see how those customary brokerage charges and costs to liquidate the funds stack up.

I imagine it will be like a bankruptcy, where the liqudators burn through most of the remaining funds and the muppets get reamed ;o)

Freddie's picture

Cramer needs to join them in a dirt nap.

MillionDollarBoner_'s picture

"Dust thou art, and unto dust thou shalt return"

(Genesis 3:19),

spankthebernank's picture

Can't we see they have captured a large portion of the the retired and suckers money, liquidity is drying up. They bankrupt Knight, shutter these funds and will shutter more. It's consolidation time for the oligarchs, they desire control and will defile this market until it breaks.

ThunderingTurd's picture

It seems as if the 'L' side of my P&L has been fascinated with them since April...

Josh Randall's picture

Concert cancelled due to lack of advertising funds

Dr. Engali's picture

You mean people aren't interested in a product that gets you creamed if the index goes against you,but it doesn't participate when you are on the right side of the call? Who would have thunk it?

flacon's picture

Shorters are disappointed. Remember the short AGQ, long ZSL play? Guaranteed to make money - not that I've done it, but in theory it should be a winner. 

aerojet's picture

ETFs are such a joke.  The inverse ones were just bizarro land.  Levered ETFs had the same and worse problems as the inverse ones.  Just a play to extract money from fools, pretty much.

John Self's picture

Agreed, but interesting how frequently (as we've seen in other contexts in recent years), the fools turn out to be the "sophisticated" institutional investors, not retail.

Marco's picture

I think bribery of institutional investors is endemic, plenty of examples to be found and knowing how efficient financial policing is they can only be a very small tip of the iceberg.

Hell, maybey they can even convince themselves it isn't bribery at all ... rich folk aren't like normal people after all.

"The three asset managers charged with bribing Gloor pleaded not guilty, saying they had paid him money solely as "gestures of friendship" or out of "gratefulness", but never in return for favours, the NZZ said."

flacon's picture

Wynter Benton went long AGQ and made a killing, I hear. 

ThisIsBob's picture

Aero, you are obviously not an active trader. 

Amish Hacker's picture

Time decay, bitchez. And the mathematical reality that if something goes down 33%, it has to go up 50% to get back to break even. Using a "Buy and Hold" strategy with leveraged ETFs is only for the brain-dead.

Al Huxley's picture

Yes, and you don't even have to do the math to figure it out - anybody looking at the charts could see it.

Precious's picture

Why don't you go buy some nylons, faggot.

John Self's picture

This violates the golden rule of the ETF industry:  if you reserve a cutesy enough ticker, you're guaranteed to succeed!

veyron's picture

Fuck Gartman and his shitty ONN ETF. NASDAQ misinterpreted ONNN (ON Semiconductor) as ONN and I ended up losing 50 bucks on that gaffe.

dwayne elizando's picture

ULE needs to join this list.

The Wizard of Oz's picture

3x BULLISH!!!!!!!!!!

Sequitur's picture

Wow, maybe I can get in on this. I need some Alpha. Using my client's money, of course.

- John Corzine.

slewie the pi-rat's picture

wowser!  theta sucking monsters!

a triple lindy of triple lindy fails!

their erexion has lost its direxion, BiCheZ!

[we may soon hear of criminal investigation;  the treble-damage civil fraud suits will contain specific language allegating frequent and repeated triple COW-tipping at the close...]

 

Arnold Ziffel's picture

<< there is no assurance that there will be a market for the Funds during that time period.>>

 

Sounds 'Bullish' to me.

Meesohaawnee's picture

been my experience that yes its true .. You really dont need certain sectors. Lets face the emerging markets trade the same as the US equity markets so they seem redundant to me. I could be wrong but you can trash them for all the degradation you want. I just  look at them like options without the expirations? I know very little here so please if someone can lash me and correct me please do .

adr's picture

But I thought owning something that is supposed to own part of something else that derives its price based on the movement of something that it might not own but may be tied to the movement of something else owned by someone else, was a good thing.

Piranhanoia's picture

I refuse to gamble on bullcows and bearcows and briccows because that seems stupid after drinking.

Butt Fux's picture

Meh. I don't think they're going to be closing the TZAs or SKFs anytime soon.

agent default's picture

There is nothing wrong with x3 ETFs or x50 ETFs for that matter unless you understand one basic thing:  These things are intended for ultra short term, preferably intraday trading and are aimed at experienced/professional traders, of perfect market timers.

At some point down the line, some "investment advisers" started putting them in client portfolios and recommending to hold them long term.  I am at a loss for words at the standard required to become a licensed investment adviser here.  They are completely oblivious to the function of the leveraging mechanism involved in these gizmos and how it relates to NAV.  Same for Inverse ETFs.  An inverse position is A LEVERED POSITION. Stop looking stupid when you get pounded by these things, they don't work the way you think.  At least not in buy and hold mode as many crackpots in the industry will try to tell you. 

BTW food for thought:  Under high contango conditions, is your "1:1" six month commodity futures ETF levered? 

Ask your "investment adviser" .

PS:If you don't understand what this rant is about stay away from these things. If you do then you know not to touch these things.

dwayne elizando's picture

What about binary options? Can I touch them?

agent default's picture

All or nothing intraday bet.  Do you feel lucky?

Lost Wages's picture

Even Charles Nenner has been recommending TBT long-term.

Al Huxley's picture

I disagree. What you said is probably what they claimed in the prospectus, but the reality is they were targeted at gullible retail, who often didn't understand the math the creates the longer-term decay.  And I'm sure many (most?) investment advisors didn't help the situation by providing clarification to their customers.

singsing's picture

If you get a prospectus.  They don't even bother to send you a prospectus in Canada.

Freddie's picture

Agreed.  They are very volatile.  You can swing trade them if you are good. You have to pay very close attention like a day trade or options and it "ain't" easy.

The TMF or 3x 30 uear T Bond is looking shaky.  If we have a correction in bonds - a lot of people are gonna get hurt.

It is weird how they decided to shut em down the day after Knight immolates over a 30 minute lunch time.

Marco's picture

So who's supposed to hold the bag at the end of the day?

mccoyspace's picture

Given that everything is so tightly correlated across every asset class, all these funds should be replaced with a coin flip based on what comes out of the Fed/ECB's mouth.

disabledvet's picture

50 50! Hahahaha. That's a good one!

Meesohaawnee's picture

please. call me an idiot. and i dont ever want to chart my winnings to anyone here. its just for the sake of argument. Last april i pitched most every long i had and just built a TZA position up till june. I dont know. A + 40% in three months didnt seem so bad but i know., even a blind squirrel finds a nut. I swing trade, so i got lucky

q99x2's picture

Guess they are still making too much money screwing their customers on the infamous TfuckinVix ETN. m'fers. It is a bargain today at 3 bucks a pop. Get it while you can.

Anyhow who wants to be in stocks when you can be out having fun in a civil fucking war.

That's it I'm going back to listen to PrisonPlanet.com

Zero Govt's picture

what a shame, another door for me to lose money is closed!