Direxion, a prominent provider of leveraged and inverse exchange-traded funds (ETFs), has announced plans to execute reverse splits for four of its bear ETFs. The affected funds include those tracking gold miners, technology, internet, and China markets. This corporate action, set to take effect after market close on November 1, 2024, will significantly reduce the number of outstanding shares while proportionally increasing the price per share.
The Direxion Daily Gold Miners Index Bear 2X Shares (DUST), Direxion Daily Technology Bear 3X Shares (TECS), and Direxion Daily Dow Jones Internet Bear 3X Shares (WEBS) will undergo a 1-for-10 reverse split, resulting in a 90% decrease in outstanding shares. The Direxion Daily FTSE China Bear 3X Shares (YANG) will see a more dramatic 1-for-20 reverse split, reducing its share count by 95%.
While the total market value of investors' holdings will remain unchanged, the reverse splits will affect the number of shares owned and their corresponding price. For instance, an investor holding 1,000 shares of a fund undergoing a 1-for-10 split will end up with 100 shares, each worth ten times the previous value. This adjustment aims to bring the share prices of these funds to more manageable levels, potentially improving their tradability and appeal to investors.
Investors should be aware that the reverse splits may result in fractional shares, which cannot be traded on the NYSE Arca. Direxion will redeem these fractional shares for cash at the split-adjusted net asset value (NAV), which could have tax implications for shareholders. Additionally, new CUSIP numbers will be assigned to the affected funds, effective November 4, 2024.
This corporate action highlights the ongoing management of leveraged ETFs, which are complex financial instruments designed for sophisticated investors engaging in short-term trading strategies. The reverse splits serve as a reminder of the unique risks and considerations associated with these products, including the effects of daily rebalancing and the potential for significant price movements.
As the ETF landscape continues to evolve, moves like these underscore the importance for investors to stay informed about changes to their holdings and to understand the mechanics of the products in which they invest. The reverse splits may also prompt a reassessment of positions in these funds, particularly for long-term holders who may not have anticipated such corporate actions.
