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An Overview of Leveraged Index Funds

An Overview of Leveraged Index Funds provides a framework to better understand the three fundamental attributes of leveraged index mutual funds: magnification, liquidity and direction.

Magnification
A leveraged index mutual fund is an index based mutual fund that seeks to magnify the daily investment performance, less fees and expenses, of a benchmark index. The daily multiple is frequently called the "Beta" of the Fund.

An example, the Direxion S&P 500 Bull 2.5x Fund seeks to achieve a daily return that is 2.5 times, or 250%, of the price performance of the S&P 500 Index. If $100,000 is invested in the S&P 500 Bull 2.5x Fund, then the original investment will receive $250,000 of exposure to the S&P 500 Index on a daily basis.

If the value of the S&P 500 rises by 1%, then an investor should expect a gain of 2.5%, less fees and expenses, on their original $100,000 investment. However, if the value of the S&P 500 declines by 1%, an investor would have a 2.5% loss on the $100,000 investment.

Applying leverage to an index has the potential for greater gains (or potentially greater losses) relative to the performance of the underlying index / benchmark.

Liquidity
Leveraged Index Mutual Funds allow you to move freely in-and-out of a fund on a daily basis – which may enhance your ability to capture opportunities and actively manage your portfolio.

A Direxion Funds shareholder invested in the S&P 500 Bull 2.5x Fund one day, could exchange into the S&P 500 Bear 2.5x Fund the next, without incurring any redemption or exchange fees, because Direxion Funds charges no such fees.

Direction
Leveraged Index Mutual Funds are multi-directional. Direxion Bull Funds move in the same direction of their underlying index, while Direxion Bear Funds move in the opposite or inverse direction of their underlying index. Here is an example of how Bull and Bear Funds behave in rising and falling market conditions.

The S&P 500 Bull 2.5x Fund seeks to achieve a daily return that is 250% of the price performance of the S&P 500, while the S&P 500 Bear 2.5x Fund seeks to achieve a daily return that is 250% of the opposite (or inverse) of the price performance of the S&P 500.

If the value of the S&P 500 rises by 1%, then the Bull Fund seeks to deliver a 2.5% daily gain, while the Bear Fund would deliver a 2.5% daily loss. The opposite would hold true if the S&P 500 decreased by 1%, then the Bull Fund would deliver a 2.5% daily loss and the Bear Fund would deliver a 2.5% daily gain.

Long and Inverse Funds may enable you to seek profits from cyclical upward or downward market movements. Additionally, Inverse Funds may enable you to hedge portfolio positions.

Conclusion
Leveraged index funds are investment tools that provide liquidity, leverage and are multi-directional. These tools may be used to implement active investment techniques that may add incremental performance to a portfolio.

For additional information about how you can use leveraged index funds in your portfolio, please contact us at info@direxionfunds.com.

An investor should consider the investment objectives, risks, charges, and expenses of any of the Direxion Funds before investing. There is no guarantee that any Direxion Fund will achieve its investment objective. Investors should review the prospectus for more information about investing in Direxion Funds. To obtain a prospectus, please contact the Direxion Funds at 800.851.0511.

Investing in index funds may be more volatile than investing in broadly diversified funds. The use of leverage by a mutual fund increases the risk to the fund. The more a fund invests in leveraged instruments the more the leverage will magnify gains or losses on those investments.

The principal risks of investing in the S&P 500® Bull 2.5x Fund and the S&P 500® Bear 2.5x Fund are Market Timing Activity and High Portfolio Turnover, Risk of Tracking Error, Risks of Aggressive Investment Techniques, Leverage Risk, Counterparty Risks, Risk of Non-Diversification, Interest Rate Changes, Risks of Investing in Other Investment Companies and ETFs, Adverse Market Conditions, Risks of Investing in Equity Securities, and Credit Risk. Additional risks of investing in the S&P 500® Bear 2.5x Fund are Risks of Shorting Instruments and Inverse Correlation Risk. For more information on the risks of the funds, including a description of each risk, please refer to the prospectus.