Law Office of Christopher J. Gray, P.C. wishes to alert investors to the possibility that recommendations of Direxion ETF (Exchange Traded Fund) Funds (Direxion) by broker-dealers may be unsuitable, depending on the individual characteristics of investors and whether the broker had a reasonable basis for the recommendation.
An ETF fund is similar a mutual fund in that investors pool their resources in order to invest in a higher class of assets. However unlike mutual funds ETF’s are traded throughout the day on exchanges, and fluctuate in price like regular stocks. ETF’s can be a suitable investment for some investors looking for long term returns, but leveraged ETF funds (such as Direxion) are more complex and carry greater risk for investors.
In particular, leveraged ETFs borrow money to make larger bets on the value of their underlying assets, theoretically causing their returns to be greater than gains in the value of the underlying assets, or magnifying losses in the event of losses in value of the underlying assets. Further, many levereaged ETFs have historically failed to track the performance of the underlying assets as inteneded, and the performance of leveraged ETFs as a group has been notably unpredictable.
Some of the Direxion Funds that have suffered large losses include:
Direxion Daily Nat Gas Rltd Bull 3X ETF (GASL) -84.36%
Direxion Daily Brazil Bull 3X ETF (BRZU) -77.04%
Direxion Daily Russia Bear 3X ETF (RUSS) – 70.18%
Direxion Daily Latin America Bull 3X ETF (LBJ) -62.24%
Direxion Daily Gold Miners Bull 3X ETF (NUGT) -62.82%
Direxion Daily Jr Gld Mnrs Bull 3X ETF (JNUG) -60.54%
Direxion Daily Jr Gld Mnrs Bear 3X ETF (JDST) -54.59
Direxion Daily Energy Bull 3X (ERX) -42.22%
Regulators such as the Financial industry Regulatory Authority (FINRA) have been looking at the sale of leveraged and inverse ETF’s in recent years. One of the risks of leveraged ETF’s is that they may trade as little as only a few thousand shares per day, leading to low liquidity. In addition, leveraged ETF’s are complex investments meant for sophisticated investors, and not investors with a moderate risk tolerance.
When a broker recommends that a client purchase or sell a security, the broker must have a reasonable basis for believing that the recommendation is suitable for the investor. In making this assessment, a broker must consider the investors income and net worth, investment objectives, risk tolerance, and other security holdings.
If you believe you have been the victim of stockbroker misconduct, you may wish to consult an attorney to find out more about your legal rights and options. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.