Practical Use Cases for the Direxion U.S. 500 Plus ETF
After investors understand how managed futures may improve portfolio diversification,¹ the next challenge is often implementation. How do you add a strategy designed to behave differently from traditional stocks and bonds without making the portfolio more complicated in the process?
The Direxion U.S. 500 Plus ETF (SPXP) is built around a specific answer to that question. Rather than requiring investors to reduce equity exposure or make a separate alternatives allocation, SPXP tracks the Auspice U.S. Equity Plus Trend Index (AUSEPTI)*, which pairs 100% S&P 500 exposure with a 100% managed futures overlay.
As the figure above shows, the equity and managed futures components are each fully expressed. Neither is a partial or diluted position, and both are rebalanced monthly within the index. The overlay can shift long or short depending on market trends, following systematic signals across global asset classes including commodities, currencies, and fixed income.
Three Ways to Use SPXP in a Portfolio
With that structure in mind, here are three ways investors and financial professionals may think about putting SPXP to work in portfolios:
1) For the Equity-Focused Investor Who Doesn’t Want to Reduce Core Holdings
One of the persistent challenges with traditional alternatives is the reallocation problem. To add a diversifier, something else typically has to be trimmed. For an investor who wants to maintain full S&P 500 participation, that trade-off can be difficult to justify, especially when large-cap equities are still doing the heavy lifting in the portfolio.
SPXP addresses this directly. Because the managed futures overlay is embedded alongside the equity exposure rather than replacing it, investors can access both without reducing their existing positions. In that sense, SPXP may be best thought of as an enhanced core equity holding, one that carries a potential diversifying component.
2) For the 60/40 Investor Looking for a Third Return Driver
The traditional 60/40 portfolio is built on a correlation assumption: that bonds will behave differently from stocks when it matters most. That assumption has been tested, particularly in inflationary environments.
For investors already holding both stocks and bonds, SPXP may serve as a complement that introduces a third potential return driver: the managed futures trend component, which draws on price signals across multiple asset classes and can take both long and short* positions. This doesn’t replace the bond allocation. It adds something that may behave differently from both sides, stocks and bonds, of a traditional portfolio.
3) For the Advisor Ready to Implement Managed Futures
Many financial professionals have become familiar with managed futures as a concept. The challenge often comes down to implementation: standalone strategies or alternatives funds can be complex to onboard, require separate allocation decisions, and may issue a Schedule K-1, which adds to tax reporting complexity for clients.
SPXP is structured as a traditional ETF. It offers daily liquidity, transparency, and issues a Form 1099 rather than a K-1, which may simplify the tax picture for clients.² For advisors who have had the managed futures conversation, SPXP may reduce the friction between intention and implementation.
Putting It All Together
SPXP is not designed to outperform in every environment. Trend-following strategies can lag in choppy, directionless markets where sustained price trends don’t develop. In other words, periods when the overlay may generate drag without providing the offset investors are looking for.
That said, for investors thinking across full market cycles rather than short-term windows, SPXP offers a structure worth understanding: full equity exposure, a systematic diversifying overlay, and all of it wrapped in a single ETF.
1 Diversification does not ensure a profit or protect against loss.
2 Investors should consult a tax advisor regarding their individual situation.
* Definitions & Index Descriptions
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Futures may be affected by backwardation or contango. Backwardation is a market condition in which a futures price is lower in the distant delivery month than in the near delivery month. Contango is a market condition in which the futures price is higher in the distant delivery month than in the near delivery month. In cases of contango, the Fund’s total return may be lower than might otherwise be the case because the Fund would be selling less expensive contracts and buying a more expensive ones.
The Auspice U.S. Equity Plus Trend Index (the "Index") is the exclusive property of Auspice Capital Advisors Ltd. (“Auspice”). Auspice and the Auspice index name are service mark(s) of Auspice or its affiliates and have been licensed for use for certain purposes by the Direxion U.S. 500 Plus ETF. The financial securities referred to herein are not sponsored, endorsed, or promoted by Auspice, and Auspice bears no liability with respect to any such financial securities. No purchaser, seller or holder of this product, or any other person or entity, should use or refer to any Auspice trade name, trademark or service mark to sponsor, endorse, market or promote this product without first contacting Auspice to determine whether Auspice’s permission is required. Under no circumstances may any person or entity claim any affiliation with Auspice without the prior written permission of Auspice.
The Auspice U.S. Equity Plus Trend Index as constructed by Auspice Capital Advisors Ltd. measures the performance of a multi-asset portfolio with 100% long exposure to E-mini S&P 500 futures and 100% long exposure to a managed futures strategy. One cannot directly invest in an index.
Direxion Shares Risks - An investment in the Fund involves risk, including the possible loss of principal. The Fund is non-diversified and includes risks associated with concentration that results from the Fund’s investments in a particular industry, sector, or geographic region which can result in increased volatility. The Fund’s use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of the Fund include, but are not limited to, Index Correlation Risk, Derivatives Risk, Commodity-Linked Derivatives Risk, Futures Contracts Risk, Currency Futures Investment Risk, Passive Investment and Index Performance Risk, Counterparty Risk, Cash Transaction Risk, Subsidiary Investment Risk, Interest Rate Risk, and Tax Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of the Fund.
Exchange-traded commodity futures contracts generally are volatile and are not suitable for all investors. The value of a commodity-linked derivative investment typically is based upon the price movements of a physical commodity and may be affected by changes in overall market movements, volatility of the index, changes in interest rates, or factors affecting a particular industry or commodity, such as global pandemics, weather and other natural disasters, changes in supply and production, embargoes, tariffs and international economic, political and regulatory developments and changes in speculators' and/or investors' demand. Commodity-linked derivatives also may be subject to credit and interest rate risks that in general affect the value of debt securities. The Fund’s investments in derivatives may pose risks in addition to, and greater than, those associated with directly investing in securities or other investments.
Risks associated with the use of futures contracts are (a) the imperfect correlation between the change in market value of the instruments held by the Fund and the price of the futures contract; (b) possible lack of a liquid secondary market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused by unanticipated market movements, which are potentially unlimited; (d) the Index’s inability to predict correctly the direction of securities prices, interest rates, currency exchange rates and other economic factors; (e) the possibility that the counterparty will default in the performance of its obligations; and (f) if the Fund has insufficient cash, it may have to sell securities or financial instruments from its portfolio to meet daily variation margin requirements, which may lead to the Fund selling securities or financial instruments at a time when it may be disadvantageous to do so.