From the July 2012 issue of Research Magazine • Subscribe!

Direxion Adjusts Risk Controls

Boston-based Direxion Shares made changes to the investment strategy for the Direxion S&P 1500 RC Volatility Response Shares (VSPR), Direxion S&P 500 RC Volatility Response Shares (VSPY) and Direxion S&P Latin America 40 RC Volatility Response Shares (VLAT).                

In June, the percentage exposure to the stock component of these funds was altered to a range between 10% and 100%. Exposure to the cash component ranges between 0% and 90%.

The funds operate according to a rules-based investment approach in which equity exposure is determined by volatility. Their strategy dictates that equity exposure should be reduced during periods of high overall market volatility.

“These funds can be valuable tools that equity investors can use to help mitigate risk more effectively,” said Ed Egilinsky, managing director and head of alternative investments at Direxion. “Since periods of lower volatility have historically tended to offer growth opportunities, while periods of higher volatility usually indicate an increase in overall market risk, tracking volatility as a gauge for exposure to equities is an intelligent way for investors to protect their assets.”

The Direxion Volatility ETFs track a rules-based S&P Risk Control Index, which in turn assigns a target volatility level for the corresponding S&P cap-weighted index. The risk control indexes are designed to respond to the volatility levels of the underlying indexes by adjusting exposures to stocks and Treasuries.

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