LET THE WHOLE INDEX CARRY ITS WEIGHT
The benefit of most index funds is that they diversify away from single security risk by holding a broad basket of stocks, generally weighted by market cap, and instead isolate the “market” risk of the index that you’re targeting.
But if you are holding a market-cap weighted fund that tracks the Nasdaq-100, (as of 6/30/16) you have an over 10% position in Apple and a 55% weighting in the information technology sector! Not to mention it’s the top holding of any index fund position you hold that tracks the S&P 500 index. So much for diversifying away from single-security risk. It may be time to consider another approach.
As a result of its equal-weight methodology, QQQE is significantly less dependent on large- and mega-caps like Apple, Amazon and Microsoft as a driver of its returns. Those stocks combine for about 3% of QQQE’s weight, but combine for nearly a quarter of the Nasdaq-100 Index’s weight. Due to the equally weighted methodology, QQQE, with a greater focus on smaller and more nimble companies than the market cap weighted Nasdaq-100, has the potential to outperform mega-cap stocks during bull markets.
Additionally, the equal-weight indexing method provides access to more undervalued stocks, since market-cap-weighted methodologies typically overweight larger components that have been outperforming. In contrast, the equal-weighting methodology rebalances on a regular basis, selling recent winners and buying recent losers to maintain its equal balance.
THE DIREXION NASDAQ-100® EQUAL WEIGHTED INDEX SHARES (QQQE)
QQQE provides equal-weight exposure to all Nasdaq-100 index holdings, allowing you an opportunity to manage risk in your portfolio through:
- Broader diversification beyond technology sector stocks which may help reduce concentration risk
- Greater performance contribution from companies with smaller market capitalization
- Consistent equal-weighting, through quarterly rebalancing, after regular market fluctuations.
The result is a more diversified performance contribution from the individual companies, and sectors that are in the Nasdaq-100 index – with an attractive net expense ratio of just 0.35%*.
* The Net Expense Ratio includes management fees and other operating expenses, but does not include Acquired Fund Fees and Expenses. The Funds’ Advisor, Rafferty Asset Management, LLC (“Rafferty”) has entered into an Operating Expense Limitation Agreement with each Fund, under which Rafferty has contractually agreed to cap all or a portion of its management fee and/or reimburse each Fund for Other Expenses through September 1, 2017, to the extent that the Fund’s Total Annual Fund Operating Expenses exceed 0.35% (excluding certain expenses such as management fees, taxes, swap financing and related costs, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions, or other expenses outside the typical day-to-day operations of the Fund). If these expenses were included, the expense ratio would be higher.
The NASDAQ 100 Equal Weighted TR Index (NETR) includes 100 of the largest non-financial securities listed on NASDAQ®, but instead of being weighted by market capitalization, each of the constituents is initially set at 1.00%. The index is reviewed and adjusted annually in December, but replacements may be made any time throughout the year. The index is rebalanced quarterly in March, June, September and December.
Apple, Amazon, and Microsoft are equally weighted in the portfolio at 1% each rebalanced quarterly. They may drift slightly based on performance of the stock market during each quarter.
Disclosures and Risks
An investor should consider the investment objectives, risks, charges, and expenses of Direxion Shares carefully before investing. The prospectus and summary prospectus contain this and other information about Direxion Shares. To obtain a prospectus and summary prospectus call 866-476-7523 or visit our website at direxioninvestments.com. The prospectus and summary prospectus should be read carefully before investing.
Risks: The Fund is non-diversified and include risks associated with concentration that results from the Funds’ investments in a limited number of securities. The Fund may also invest in securities of other investment companies, including ETFs, which may involve duplication of advisory fees and certain other expenses. For other risks including equity securities risk, foreign securities risk, index correlation/tracking risk, technology securities risk and specific risks of exchange traded funds. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
Distributor: Foreside Fund Services, LLC.