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Market volatility appears to be boosting demand for two types of exchange-traded funds: leveraged and inverse.
And, Direxion CEO and ETF money manager Douglas Yones thinks market conditions will keep fueling demand for them.
“We have a lot of securities in the market that are … up a lot over the last five or 10 years. Market seemingly has been going sideways. We saw Friday’s correction,” he told CNBC’s “ETF Edge” this week. “There are people out there that are saying: ‘Hey, maybe I don’t want to be fully invested,’ but also don’t want to take the capital gain on selling a position. What can I do? I can take a long position in a short ETF and inverse ETF. I can basically neutralize my exposure.”
Leveraged and inverse ETFs give investors the opportunity to make monster bets on the stock market’s direction. Investors can go long or short.
Yones’ firm is heavily involved in the space. Yones runs the Direxion Daily Semiconductor Bull 3X Shares (SOXL), which is one of the largest leveraged/inverse ETFs. According to FactSet, Broadcom, Nvidia and Qualcomm are among the ETF’s top holdings.
As of Wednesday’s market close, Yones’ ETF is up almost 84% over the past two years, but off 36% over the past year. It’s also down more than 16% over the past week.
“There are market-moving headlines happening two to three times a day. And so, the volatility is growing up, not down,” said Yones. “We think that holds for the whole year.”
VettaFi’s Todd Rosenbluth also sees growing demand for single-stock leveraged ETFs.
“Single-stock leveraged ETFs probably sound hard to wrap your head around. But it’s one stock you get the risk-on or in case of inverse risk-off exposure to that and the liquidity benefits of the ETF wrapper,” the firm’s head of research said.
