The High Beta Trade Is On Right Now
The broader market indexes have calmed in the last few months, but that doesn’t mean the market is any more certain about the future. On any given day, traders may decide to favor “reopening stocks” only to turn around and buy “stay-at-home” stocks the next day.
Given the yo-yo market traders still find themselves in, it’s not difficult to understand the success of the Direxion Daily S&P 500® High Beta Bull 3X Shares (NYSE:HIBL) in what is now the new high-water mark of the market. The ETF, which aims to deliver 300% the daily performance of the The S&P 500 High Beta Index, spent November climbing by roughly 100%.
Hopes Rise for Future Growth
Driving the sharp uptick in HIBL is increased market confidence derived from encouraging COVID-19 vaccine trial results from Pfizer Inc. (NYSE:PFE), Moderna (NASDAQ:MRNA) and a handful of other biotech firms. The results, which have efficacy rates of upward of 95%, have unleashed the market’s animal spirits and buoyed hopes for the long-awaited v-shaped recovery investors have been pining for since the onset of the pandemic.
This hope for a broad-based recovery is apparent in some of the stocks leading HIBL higher through November. These include companies with close ties to overall economic conditions, with financial and insurance firms like Lincoln National (NYSE:LNC) higher by 31% in November despite mixed earnings and copper mining outfit Freeport-McMoRan (NYSE:FCX) up by 20% on strong earnings and rising spot price on copper, a good signal for construction and overall economic growth.
But while the broad market was certainly encouraged by the news, its impact on this year’s high-beta stocks was even more pronounced given the pandemic’s direct influence on their volatility.
Stocks Rise Along With Infections
Case in point, the hospitality and food service industries, which are a prime example of this phenomenon of hopes for a COVID comeback. Components like Norwegian Cruise Line (NYSE:NCLH) Royal Caribbean (NYSE:RCL) and Darden Restaurants (NYSE:DRI) have gained between 20-30% through November.
Of course, these stocks coming on the back of a summer in which COVID-19 was much less rampant across the world than it currently is, and likely will be, in the coming months in weeks.
The resurgence in COVID-19 may call into question the gains that these high-volatility segments of the market have seen as of late. With earnings season in the rearview, the market may only have the end of the year “Santa Claus rally” to pin their hopes on further gains into the new year.
In that case, traders may want to keep the inversely leveraged Direxion Daily S&P 500® High Beta Bear 3X Shares (NYSE:HIBS) in their bag in case the winter brings continued infections and uncertainty about the production, dissemination, and participation in a vaccine.
HIBL as of 09/30/2020
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.
For standardized and month-end click here
Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.
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 www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
Market Disruptions Resulting from COVID-19. The outbreak of COVID-19 has negatively affected the worldwide economy, individual countries, individual companies and the market in general. The future impact of COVID-19 is currently unknown, and it may exacerbate other risks that apply to the Fund.
CUSIP Identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard and Poor’s Financial Services, LLC, and are not for use or dissemination in any manner that would serve as a substitute for a CUSIP service. The CUSIP Database, © 2011 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.
Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.
Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment.
Direxion 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. The market prices for such securities are not guaranteed and will fluctuate. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
Distributor for Direxion Shares: Foreside Fund Services, LLC.
© 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.