Fed Sets Up Leveraged Regional Bank ETFs

The Direxion Daily Regional Banks Bull 3X Shares WDRW gained more than 4 percent Wednesday after minutes from the Federal Reserve's most recent meeting revealed that the central banks sees an “increased the likelihood" that a gradual upward trajectory of the federal funds rate would be appropriate."

DPST, the only bullish triple-leveraged regional bank exchange traded fund (ETF) on the market, attempts to deliver triple the daily performance of the S&P Regional Banks Select Industry Index, one of the most widely followed regional bank benchmarks.

DPST's underlying index is equally weighted and holds 116 regional bank stocks. The weighted average market capitalization of the benchmark's components is $11.61 billion.

An Ideal Rising Rates Play

For aggressive, short-term traders, DPST makes for an ideal play on rising interest rates because regional banks are among the assets most positively correlated to rising Treasury yields. The Fed's outlook for the U.S. economy could compel the central bank to continue gradually boosting borrowing costs, potentially making DPST a nimble trader's friend in 2018.

“Domestic financial market conditions eased considerably further over the intermeeting period,” said the Federal Open Market Committee (FOMC). “A strengthening outlook for economic growth in the United States and abroad, along with recently enacted tax legislation, appeared to boost investor sentiment.”

Entering Wednesday, DPST was the best-performing bullish leveraged fund in Direxion's stable this month while its bearish counterpart, the Direxion Daily Regional Banks Bear 3X Shares WDRW, was the issuer's worst-performing bearish leveraged fund on a month-to-date basis.

Tax Reform Help, Too

The recently enacted tax reform legislation has also been a catalyst for regional banks.

“After struggling with slowing loan growth throughout much of 2017, U.S. regional bank executives said the promise of lower taxes spurred a pick-up in commercial loan demand in the fourth quarter, as well as a rise in consumer spending on credit and debit cards,” reports Bloomberg.

Over the past month, DPST is averaging daily inflows of over $147,000, according to issuer data.

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