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A micro approach reaps leveraged rewards


REX Shares’ MicroSectors ETNs are designed to offer leveraged and unleveraged exposure to a range of micro sectors. This means that the firm’s original offering FNGU, the three times leveraged FANG+ Index product, would have seen a return of close to 9 per cent during Tuesday’s tech rally while a comparable three times Nasdaq index would see a return of 3.8 per cent.

Scott Acheychek, President of REX Shares, says that this was the concept behind that launch in 2018 and the new products that have come out over recent weeks.
The firm uses the ETN structure for its 10 equities diversification requirements to focus on micro sectors.

“People are using them as trading products,” Acheychek says. “We looked at the Nasdaq index and saw that many of the names in there aren’t technology companies like Pepsi, Comcast, and Costco, so we came out with a pure technology index linked ETNs with three times leverage and three time short as an option for sophisticated investors and traders.  Subsequently we launched 2x, -2x, and -1x FANG+ linked ETNs as well.”

The technology sector was joined by big banks a couple weeks ago and now energy, in the form of oil.

The big bank ETNs are linked to the Solactive MicroSectors US Big Banks Index and are issued by Bank of Montreal and also carry the option of leveraging or shorting.

The index is an equal-dollar weighted index designed to track the prices of the 10 US stocks in the banking sector with the largest free-float market capitalisation.  The ETNs track this index which was launched in February, and has the following index constituents: Bank of America Corporation (BAC), BB&T Corporation (BBT), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), JPMorgan Chase & Co. (JPM), Morgan Stanley (MS), The PNC Financial Services Group, Inc. (PNC), The Charles Schwab Corporation (SCHW), U.S. Bancorp (USB) and Wells Fargo & Company (WFC).

The same concept has now been applied to oil, with a suite of Leverage and Inverse ETNs linked to a Big US Oil Index.  Similar to the US Big Banks products, this will be a similar suite of 3x/-3x/2x/-2x/-1x exposures which is comprised of 10 stocks, the 10 biggest by market cap in Oil/Energy, and equally weighted.  

REX Shares was founded by ETF veteran Greg King in 2015, previously a founder of Velocity Shares.

Acheychek says: “These micro sector products are designed for active trading.  We are seeing continued growth in sector trading and the leverage and inverse marketplace.  Much of that is attributable to the continued record setting AUMs at Hedge Funds, RIAs and the incredible growth of self-directed investors.  They are using their phones in this day of information at your fingertips and making their own trades.”

Acheychek notes that market share of assets at the traditional US wirehouse ETF platforms are going down as many financial advisers are going  independent or turning themselves into registered investment advisers which gives them access to any vehicle they want.

Fees on the ETNs are 95 basis points plus leverage charges, and more products could be on the way. “We are constantly looking at the market and we do think there are additional opportunities for MicroSectors.”

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