The Xchange Blog

Tech: Not the Only Game In Town.

Which Sectors are Driving the Markets?

For most of the last three years there’s been one consistent driver of the market: tech stocks. While every other sector has faltered at various times, the Technology Select Sector is up about 44 percent over the past three years, due in large part to the rally in large-cap stocks like Facebook, Amazon, Apple, Microsoft, and Google.

Back in June, a Goldman Sachs analyst called attention to this trend, noting that those five stocks, the so-called FAAMG stocks, have valuations that resemble that of the dot-com bubble. That comparison was enough to cause a brief sell-off in the sector, and by extension the overall market, but in just two weeks all those losses had been regained.

You can see this trend play out in the Direxion Daily Technology Bull and Bear 3X Leveraged ETFs (TECL, TECS), which track all of those companies mentioned above, excluding Amazon.


Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate. An investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized.

 

Clearly, growth in Tech cannot be ignored, especially as other industries like Auto and Media become more reliant on technology to sustain growth. But don’t overlook other sectors that have seen huge rallies in 2017.

Case in point, Biotech. The chart below shows the S&P Biotechnology Select Industry Index and the Direxion Daily S&P Biotech Bull and Bear 3X Leveraged ETFs (LABU, LABD)


Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results.

 

The sector with the best one-year performance though is Financials, which have moved higher in lockstep with an increasingly dovish Federal Reserve who’s announced its intent to end quantitative easing. Since October 2016, the Financials sector is up over 30%.

Just look at the Direxion Daily Financial Bull and Bear 3X Leveraged ETFs (FAS, FAZ), as they compare with the Russell 1000® Financial Services Index. That performance is driven in part by rallies in top holdings like Visa (up approximately 32 percent YTD) and Citigroup (up approximately 30 percent YTD).


Source: Bloomberg. The performance data quoted represents past performance. Past performance does not guarantee future results.

 

While the Tech sector still has the largest weighting of any sector in the S&P 500, (23 percent as of the end of May), don’t let their domination of the headlines trick you into thinking it’s the sole driver of this rally. The tech giants may be holding the wheel, but financials and biotech have had their feet on the accelerator.

Will that acceleration last through Q4 of this year? Whether you want to bet on a continued upward trend, or trade a pullback, Direxion has a range of Leveraged ETFs to express your trading views into the end of the year and beyond.

 

 


Performance (as of 9/30/2017)

Ticker Fund   1-Mo % 3-Mo % YTD 1-Yr % 3-Yr % 5-Yr % S/I % Inception Expense Ratio (Gross/Net) %
FAS  Direxion Daily Financial Bull 3X Shares  NAV 10.26 13.52 36.96 91.88 29.66 44.92 3.50 11/5/2008  1.06/1.05 
Market Close 10.24 13.32 36.85 92.01 29.55 44.96 3.50
FAZ  Direxion Daily Financial Bear 3X Shares  NAV -10.12 -14.05 -33.15 -54.16 -39.79 -45.09 -59.76 11/5/2008  1.13/1.10 
Market Close -10.06 -13.88 -32.87 -54.18 -39.72 -45.07 -59.75
TECL  Direxion Daily Technology Bull 3X Shares  NAV 1.97 24.82 79.81 84.54 41.68 43.32 47.24 12/16/2008  1.10/1.08 
Market Close 1.90 24.61 79.37 84.63 41.61 43.35 47.28
TECS  Direxion Daily Technology Bear 3X Shares  NAV -2.94 -22.57 -49.35 -52.80 -44.97 -44.08 -52.33 12/16/2008  1.29/1.10 
Market Close -2.72 -22.48 -49.28 -52.75 -44.93 -44.07 -52.32
LABU  Direxion Daily S&P Biotech Bull 3X Shares  NAV 8.92 35.46 172.60 74.84     -23.54 5/27/2015  1.11/1.09 
Market Close 9.35 35.56 172.98 75.25     -23.46
LABD  Direxion Daily S&P Biotech Bear 3X Shares  NAV -9.63 -33.53 -75.74 -73.41     -60.24 5/27/2015  1.15/1.08 
Market Close -9.80 -33.33 -75.73 -73.36     -60.24

* The Net Expense Ratio includes management fees, other operating expenses and Acquired Fund Fees and Expenses. If Acquired Fund Fees and Expenses were excluded, the Net Expense Ratio would be 0.95%. The Funds’ Adviser, 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, 2018, to the extent that the Fund’s Total Annual Fund Operating Expenses exceed 0.95% of the Fund’s daily net assets other than the following: taxes, swap financing and related costs, acquired fund fees and expenses, dividends or interest on short positions, other interest expenses, brokerage commissions and extraordinary expenses. If these expenses were included, the expense ratio would be higher.

An investor should consider the investment objectives, risks, charges, and expenses of ETFs carefully before investing. The prospectus and summary prospectus contain this and other information about ETFs. To obtain a prospectus or summary prospectus please visit www.direxion.com/regulatory-documents. The prospectus and summary prospectus should be read carefully before investing.

There is no guarantee that the ETFs will achieve their investment objectives. The Direxion Leveraged and Inverse ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investments.   Investing in the ETFs may be more volatile than investing in broadly diversified funds. The use of leverage by an ETF means the ETFs are riskier than alternatives which do not use leverage

Direxion Daily Technology Bull and Bear 3X Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the return of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to the Technology Sector, such as Semiconductors Industry Risk and Technology and Telecommunications Risk, for the Direxion Daily Technology Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Technology Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Direxion Daily S&P Biotech Bull and Bear 3X Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. The Funds are non-diversified and include risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geography which can increase volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, risks specific to investment in the securities of the Biotechnology Industry and Healthcare Sector, for the Direxion Daily S&P Biotech Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily S&P Biotech Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Direxion Daily Financial Bull and Bear 3X Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Each Fund does not attempt to, and should not be expected to, provide returns which are three times the performance of their underlying index for periods other than a single day. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Counterparty Risk, Intra-Day Investment Risk, and risks specific to investment in the securities of the Financial Sector, for the Direxion Daily Financial Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Financial Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

Distributor: Foreside Funds Services, LLC