Solactive has announced that Direxion, described as the pioneer in leveraged and non-vanilla ETFs, has launched its new penny and meme stock ETF, the Direxion Low Priced Stock ETF (Ticker: LOPX), which tracks the Solactive Two Bucks Index, which incorporates stocks with a relatively low share price, and which are typically more difficult to trade due to their lack of liquidity.
The ETF, which is the first ETF of its kind tracking stocks with such low share prices, builds upon the recent spike in interest in penny stocks, such as AMC, and provides investors with an alternative to trading low-volume assets individually.
The ETF started trading on July 22nd on the New York Stock Exchange. In January, the short squeeze of GameStop and other securities caused significant losses to hedge funds and short sellers. At its peak, GameStop’s stock price reached a value of USD347.51 per share, compared to the stock’s price of USD18.84 on December 30th, 2020. The sharp increase in GameStop’s stock value was triggered through a large group of retail investors, which gathered in an internet forum – a so-called “subreddit” – on the social news website Reddit.
In the subreddit r/wallstreetbets, individual investors discuss high-risk financial transactions with each other. Due to the nature of the discussions in said forums, featuring a variety of usercreated pictures, so-called “memes”, stocks that experienced an extensive increase in value due to social media were labeled “meme stocks” henceforth.
Solactive writes that Direxion realised the potential of meme stocks and, since many meme stocks are situated in the penny stock range, created an ETF, the Two Bucks which enables investors to access these stocks straightforwardly. The Direxion Low Priced Stock ETF tracks the Solactive Two Bucks Index, which is an equal-weighted index that serves as a representation of securities within a relatively low price range in terms of absolute trading prices in the United States. For each selection day (the index rebalances quarterly), eligible stocks must exhibit a minimum average daily value traded of USD1 million over three months before and including the selection day and must feature a security market capitalization of at least USD85 million on the selection day.
As the most prominent criteria for index inclusion serves the closing price on the selection day. Only stocks between the value of USD2.00 and USD5.00 are admitted to the index. The index features 50 stocks.
“The internet democratised many aspects of our daily lives, and it gives individuals a voice, which, aggregated, can force leviathans to their knees. This possibility affected some hedge funds deeply, depicting their vulnerability in a striking and fashion,” says Timo Pfeiffer, Chief Markets Officer at Solactive. “Although it might be unlikely that hedge funds fall prey to social media-induced short squeezed due to asset managers’ intensive monitoring of common sources, strong lifts in prices of meme and penny stocks are not off the table in the future. We are happy that Direxion, one of the pioneers in sophisticated passive investment strategies, approached Solactive for such an innovative index strategy, and we cannot wait to work with them on future unconventional strategies.”
“Investors and traders are increasingly interested in gaining exposure to stocks outside of traditional indexes,” said David Mazza, Managing Director, Head of Product at Direxion. “On average, low priced stocks have four times fewer analyst recommendations than mega caps, highlighting their lack of coverage by investment banks. LOPX provides a way for Main Street investors to take advantage of stocks neglected by Wall Street research, which may be ripe for potential outperformance.”