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Direxion To Close Down 3 Leveraged ETFs

The Direxion Shares ETF Trust has decided to cease trading three of its leveraged products after the closing session on October 20, 2015. The decision, based on the recommendation of the funds’ sponsor Rafferty Asset Management, LLC, was taken due to the funds’ inability to attract sufficient investment assets. We believe strong competition in the asset class and pitfalls of investing in leveraged ETFs in this turbulent time with high volatility might have kept investors away from these funds. Leveraged ETFs are designed to magnify returns of the underlying index. However, these products lose their asset value during a highly volatile market environment, particularly in the long term. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period (such as, weeks or months) (read: Understanding Leveraged ETFs ). Let’s discuss the three products, serving divergent interests, which are about to be closed down (see all Leveraged Equity ETFs here). Direxion Daily 7-10 Year Treasury Bull 2X Shares ETF (NYSEARCA: SYTL ) SYTL tracks the NYSE 7-10 Year Treasury Bond Index, which is a multiple-security fixed income index that aims to track the total returns of the intermediate 7 to 10 year maturity range of the U.S. Treasury bond market. This product provides two times (2x) exposure to the daily performance of the underlying index. The fund has been overlooked by investors as it has garnered only $4.5 million in assets since its inception in July last year. It charges 60 bps in annual fees from investors. However, the product gained 3.8% so far this year. The closure of this ETF seems unfortunate at a time when investors are flocking toward bond ETFs due to global stock market instability and Fed’s reluctance to raise interest rates in the near term, as lower rates push the yields down, boosting the prices for the bonds. Investors still interested to play the leveraged Treasury bond ETF category could consider the more popular ProShares Ultra 7-10 Year Treasury ETF (NYSEARCA: UST ) , which provides two times exposure to the Barclays Capital U.S. 7-10 Year Treasury Index. This product has roughly $95 million in AUM and charges 95 bps in fees. The fund returned 4.8% in the year-to-date timeframe. Direxion Daily Mid Cap Bull 2X Shares ETF (NYSEARCA: MDLL ) MDLL follows the S&P Mid Cap 400 Index, measuring the performance of the mid-cap segment of the U.S. equity universe. It seeks daily investment results of 200% of the performance of the benchmark index. The fund is almost neglected gathering a meager $1.5 million in assets since its inception in July last year. It charges 60 bps in fees from investors and was down 15.7% in the year-to-date period. The closure of this fund doesn’t look good either at a time when mid-cap funds are favored by investors due to their potential to move higher in difficult times, especially if political issues or financial instability creep into the picture. Investors still interested in leveraged mid-cap ETFs could consider the Direxion Daily Mid Cap Bull 3x Shares ETF (NYSEARCA: MIDU ) by the same issuer. The fund seeks investment results of 300% of the price performance of the S&P Mid Cap 400 Index. It has $54 million in AUM and charges 95 bps in fees. The fund lost 5.9% so far this year. Direxion Daily Basic Materials Bull 3X Shares ETF (NYSEARCA: MATL ) MATL tracks the Materials Select Sector Index, which includes companies from the chemicals, metals & mining, paper & forest products, containers & packaging, and construction materials industries. It provides three times (3x) exposure to the daily performance of the underlying index. The fund was hardly noticed by investors as it has accumulated only $2.2 million in assets since its launch in June 2011. It charges 95 bps in annual fees from investors. The basic materials sector has been dragged down by weak agricultural fundamentals, sluggish demand in energy markets and persistent slowdown in China – the world’s second largest consumer of raw materials. This might have made the fund an unpopular choice among investors. The product lost 32.5% in the year-to-date timeframe. Link to the original post on Zacks.com

ETF Leveraged Daily Trading Service For 10-15-2015

Summary UVXY continued to give us nice profit. Gold miners are still looking up but is caution warranted? Call for leaning short the market came to fruition. (Subscribers received early access to this article here .) INDEXES Yesterday I said it’s hard to be bullish on anything with the kind of a market turnaround we had on Monday and that overall I still see problems all over the place. Today we got a worse than expected retail sales report and lower producer prices fitting perfectly in with my deflationary scenario. The market at first shrugged it off in a bizarro world fashion, but then began to fall, rebound and fall again. I said to keep an eye on (NYSEARCA: UVXY ) for clues and 2 days ago, before broke 35 I said it will give us a tremendous buy. Today broke over 40 before settling in at the close at 38.21. It’s down a little after hours and right now in buy the dip mode. That run up could have been caught for a trade once it broke 37.92 using the higher high rule. I caught it for almost 2 points, but I also like taking profit and do so more quickly on as it can turn on you sometimes. While news can cause a short term move one way or the other, we saw (NYSEARCA: TWM ) trigger as a buy at tomorrow’s open if it is higher than today’s close per the Trading Rules. Keep an eye on China and Europe for some direction if aggressive and looking to go long all of the short market indexes that are green on the monthly; (NYSEARCA: TZA ), (NYSEARCA: SPXS ), (NYSEARCA: SPXU ), (SQQ), (NYSEARCA: SDOW ), (NYSEARCA: SDS ), (NYSEARCA: QID ), (NYSEARCA: DXD ), and (NYSEARCA: FAZ ). (NASDAQ: BIS ) bucked the trend today but is still a good potential if the market continues to fall. I have to lean towards this trend but conservative investors will wait till we get more of these monthlies turning green on the weekly again before jumping in. (NYSEARCA: SVXY ) turning red on the weekly helps with our trend analysis to lean short the indexes. A few more greens on the weekly and we can get our more reliable trend to trade again instead of the last month of volatility. CHINA/RUSSIA/EMERGING I was a little early in (NYSEARCA: YANG ) and (NYSEARCA: RUSS ) yesterday as they both opened lower and stayed lower despite the move down in U.S. markets. I am still a fan despite today’s price action. Yesterday I said I would be a buyer of (NYSEARCA: EDZ ) if over 40.10. It only got to 39.71 which I would be a buyer over that price tomorrow. INTEREST RATES Yesterday I said I still like (NYSEARCA: TLT ) for a longer term trade as I have been saying for months. It was up 1.08% today and still liking it. ENERGY Yesterday I said I would go long (NYSEARCA: DWTI ) over 95.50 tomorrow. It opened at 96.22 and moved as high as 98.39 before closing lower at 94.46. I would buy (NYSEARCA: UWTI ) over 11.45 tomorrow for a possible few day trade and see if we can’t get back down to the 60’s to swallow up and ride to the 100’s again. I would however still be a buyer of over 98.39 but only for a scalp. I don’t think we’re quite ready to go for the home run yet. (NYSEARCA: UGAZ ) I said I would wait till Thursday’s report for some action to trade. I want to lean long but why gamble? Wait for the report to come out and jump on the higher high per the Trading Rules. (NYSEARCA: ERX ) I said yesterday we need a little more patience for a trend to set up. It may have started today as it moved up 2.4%. For aggressive traders I would attempt a long tomorrow at the open if it is higher than today’s close of 34.53 or if conservative wait till it is over 34.96 to go long. GOLD MINING RELATED ANALYSIS Yesterday for the miners I said we may still have one last push higher to grab the last bit of bulls for gold and silver and take them to the woodshed one last time. (NYSEARCA: GLD ) joined (NYSEARCA: SLV ) and turned green on the weekly and monthly now and (NYSEARCA: GDX ), (NYSEARCA: NUGT ), (NYSEARCA: JNUG ) and (NYSEARCA: GDXJ ) all had great days. They probably have a little more room to the upside here as we approach the $1,200 to $1,220 mark in gold I have been looking for. The dollar moved lower on the data that came out today and many think a rate hike is even further off because of it and view this as positive for gold. I said I will be all over (NYSEARCA: JDST ) soon enough and if you read my Current Thoughts the last week you’ll know how I view the dollar and Euro and how I see things unfolding for precious metals. A few days ago I said you can’t ignore this strength in the metals and miners and today would indeed qualify as a “push higher.” Expect a little continuation and then a pullback and look for the potential of a higher high in . I won’t say we’ll catch the exact moment will turn higher, but we’ll come close. (click to enlarge) (click to enlarge)

Aberdeen Asia-Pacific Income: Emerging Markets Bonds At A 17% Discount

Summary Example of one Asian baby thrown out with the bathwater by retail investors. Relatively safe portfolio of bonds, overseen by a reputable manager, with a yield in the high single digits. High potential for alpha through eventual compression of high-teens discount to NAV. Background on Closed-End Funds For those who want exposure to a particular sector or asset class, closed-end funds sometimes represent a cheaper vehicle than alternatives like ETFs and traditional mutual funds. This is because ETFs and conventional mutual funds frequently redeem/issue new shares to ensure that the price per share remains in line with the net asset value of the underlying holdings in the funds. This is not the case for closed-end funds. Rather, the share price of closed-end funds is driven by the market forces of supply and demand, which sometimes creates attractive opportunities to buy stakes at big discounts to NAV. This tends to happen when sentiment for the particular sector on which a closed-end fund focuses becomes negative, causing some investors to sell irrespective of price. This is currently the case for several Asia-focused closed-end funds. I previously wrote about one such opportunity to obtain Chinese equity exposure at a 20%-plus discount. Here, I’ll cover another opportunity to buy debt exposure at a discount. Aberdeen Asia-Pacific Income Fund Overview The Aberdeen Asia-Pacific Income Fund (NYSEMKT: FAX ) was established in 1986 with an investment objective to seek current income through investment in Australian and Asian debt securities. Aberdeen is a reputable closed-end fund manager, which has conducted share buybacks through tender offers for several of their other funds (such as The India Fund, Inc, Aberdeen Chile Fund, Inc, and Aberdeen Greater China Fund, Inc) when they have traded at significant discounts to NAV. The fund currently pays a monthly dividend of 3.5 cents (equating to a ~9.3% yield), and its expense ratio is moderate at 1.09%, excluding interest expense and based on the fiscal year ending October 31, 2014. The fund makes moderate use of leverage, which stood at approximately 22% of gross assets at August 31, 2015. Leverage is of course a double edged sword and could magnify any gains or losses experienced by the underlying assets. As can be seen below, although the fund’s longer term returns have been reasonable, performance has suffered recently amidst general market turbulence in the sector. Source: Aberdeen Asia-Pacific Income Fund Performance Report This lackluster recent performance has spurred investor outflows that have caused FAX to now trade at a ~17% discount to NAV. As shown below, this has happened numerous times in the past when Asian market sentiment turned negative (e.g., 2008, 2000, 1998), but in all cases the discount eventually collapsed when sentiment stabilized. (click to enlarge) Source: CEFConnect Portfolio Composition Based on reported holdings at August 31, 2015, the FAX portfolio is composed of ~44% corporate bonds, ~53% sovereign and supranational bonds, and ~2.6% cash. The vast majority of the portfolio is made up of investment grade (BBB- or higher rated) bonds. To put this in a little perspective, the average annual historical default rate of bonds rated IG by S&P over the past few decades is well-under 0.5%. Source: Aberdeen Asia-Pacific Income Fund Fact Sheet The portfolio is diversified geographically as summarized below, though Australia, China, India and South Korea are the largest constituents. Source: Aberdeen Asia-Pacific Income Fund Fact Sheet Conclusion Due to the Aberdeen Asia-Pacific Income Fund’s current large discount to NAV, investors now have the ability to own a relatively safe portfolio of Asian bonds, overseen by a reputable manager, for ~83 cents on the dollar.