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Direxion ETF provides tactical exposure to commodity markets


Direxion has launched the Direxion Auspice Broad Commodity Strategy ETF (COM), which seeks to provide total return that exceeds that of the Auspice Broad Commodity Index.

The rules-based index attempts to capture trends in 12 diversified commodity markets using a quantitative methodology and offers an easier, more adaptive way to diversify with commodities.
COM allows investors to take advantage of rising commodity prices, in addition to mitigate risk by going flat (cash) when individual commodities are experiencing downward trends. It seeks to potentially provide commodity investment returns with lower risk characteristics than long-only commodity strategies.
The fund seeks to provide total return that exceeds that of the Auspice Broad Commodity Index over a complete market cycle and is potentially more adaptive to volatile commodity markets because it seeks commodity returns by taking advantage of individual commodity prices when they rise, and preserving capital by going to cash when prices fall.
“Investors recognise the value of diversification and inflation protection provided by commodities within a portfolio,” says Tim Pickering, founder and CIO at Auspice Capital Advisors. “We can seek to maximise these benefits with a tactical strategy that rides the strongest trends for upside potential, then allows for an exit to limit downside risk and volatility while providing for the best risk-adjusted results.”
“Commodities markets are cyclical and tend to revert to the mean. Traditional funds have long-only exposure to commodities, which limits their potential because investors can only benefit when commodity prices rise,” says Edward Egilinsky, managing director at Direxion. “Successfully investing in commodities depends on the ability to adapt to change. COM uses a long/flat (cash) approach to take advantage of rising commodity prices, in addition to mitigating risk when individual commodities are in downward trends. That makes it uniquely adaptive to volatile commodities markets. Its 40-Act structure means there’s no K-1 tax reporting.”
The fund’s index-based strategy takes a quantitative approach to commodity investing, with exposure to 12 commodities that can individually be long or flat. It has the ability to make position changes intra-month based on trends. There is a monthly rebalance based on risk reduction where the allocation of individual components is reduced if volatility exceeds certain predetermined risk levels. Its “smart” contract roll approach is designed to select cost-effective futures contracts to roll into upon expiration of the current contract.

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