2011 Was Cruel to This Financial ETF

As 2011 comes to a close, it's a great time to look back at what happened to the stocks and ETFs that interest you. By making sure you know the gains that a fund made -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at Direxion Daily Financial Bull 3x (NYSE: FAS  ) . This leveraged ETF promises daily returns that triple those of an index of financial companies. But as you'd expect, in a terrible year for financial stocks generally, the Direxion ETF did even worse. Below, I'll take a closer look at the events that moved the Direxion ETF's shares this year.

Stats on Direxion Daily Financial Bull

Year-to-Date Return (58.2%)
Net Assets $1.45 billion
Annual Expense Ratio 0.95%
Turnover Ratio 19%
CAPS Rating (out of 5) *

Source: Morningstar.

What happened to the Direxion ETF this year?
For the Direxion ETF to perform well, it needed strong performance from financial stocks. This past year pretty much gave them the exact opposite.

On one hand, huge catastrophes like the Japanese earthquake and tsunami, Hurricane Irene, and other weather-related events knocked property and casualty insurers like Aflac (NYSE: AFL  ) and MetLife (NYSE: MET  ) for a loop. With P&C insurers making up nearly 14% of its benchmark, the Direxion ETF took a triple hit from those losses.

At the same time, big money-center banks like Bank of America (NYSE: BAC  ) and Citigroup (NYSE: C  ) ended up giving back much of their gains since the early 2009 lows at the end of the financial crisis. While those two banks may have made particularly egregious errors, they're certainly not alone. Big investment banks Morgan Stanley (NYSE: MS  ) and Goldman Sachs also dropped sharply, as investment-driven returns at Goldman simply disappeared.

But the biggest knock against the Direxion ETF comes from its leveraged structure. Everyone should know by now that these ETFs aren't designed for long-term investors. To show that in dramatic detail, the corresponding bearish financial leveraged ETF, Direxion Daily Financial Bear 3x (NYSE: FAZ  ) , is also down this year -- albeit by "only" 9%.

If you want to bet on financials, you can do better than a leveraged ETF. Read the Motley Fool's latest special report on banking to find out which banks the smartest investors are buying now. The report is free, but it won't be there forever, so check it out today.

Click here to add Direxion Daily Financial Bull to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Bank of America, Citigroup, and Aflac. Motley Fool newsletter services have recommended buying shares of Aflac and Goldman Sachs. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


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