Investing in leveraged exchange-traded funds (ETFs) can be an attractive option for those looking to amplify their returns through short-term market movements. One of the more popular ETFs is the Direxion Daily 20+ Year Treasury Bull 3X Shares (TMF -1.5%).
The fund uses complex financial instruments, such as options, swaps, and its own proprietary trading methods, to deliver a leveraged return on the U.S. bond market. It's like betting that long-term U.S. Treasury bonds will go up but with the potential for triple the gains (or losses) in a single day due to leverage.
U.S. Treasury
What is it?
What is Direxion Daily 20+ Year Treasury Bull 3X Shares?
The Direxion Daily 20+ Year Treasury Bull 3X Shares is a leveraged ETF that seeks to deliver 3 times the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. This index includes publicly issued U.S. Treasury securities with maturities greater than 20 years.
This fund is designed for investors with a bullish outlook on long-term U.S. Treasuries. However, as with other leveraged ETFs, it's intended for short-term trading rather than long-term holding due to its leveraged nature.
How to buy
How to buy Direxion Daily 20+ Year Treasury Bull 3X Shares
Step 1: Open a brokerage account
To buy any stock or ETF, including Direxion Daily 20+ Year Treasury Bull 3X Shares, you need to open a brokerage account. Many online brokers, including E*TRADE from Morgan Stanley (MS 1.6%), TD Ameritrade, and Robinhood (HOOD 3.09%), offer access to ETFs.
Most online brokers offer low or no trading commissions to attract customers. New investors should also look for a broker with a low minimum deposit or none at all. Make sure the platform is user-friendly and easy to navigate. Consider brokers that offer additional resources, such as educational materials, stock analysis tools, and solid, reachable customer support.
Step 2: Figure out your budget
When setting your budget for investing in Direxion, consider your financial situation, investment time frame, and risk tolerance. Decide how much you're willing to invest without liquidating your assets prematurely, which could incur fees and, in the worst case, cause you to exit your investment at a loss.
Liquidity
Be comfortable with potential price swings and volatility, as this is a natural phenomenon produced by free markets. It's best also to have a good idea of whether you're investing for short-term gains or long-term growth. Direxion is more suitable for short-term trading due to its leveraged nature, which can lead to significant volatility.
Step 3: Do your research
Knowledge is crucial when investing in leveraged ETFs like Direxion. Here are some steps to take:
Understand macro trends and be wary of events. The Treasury bond market is incredibly sensitive to everything happening in the world, geopolitically and economically. For example, if a war breaks out across the world, it could disrupt global supply chains, resulting in soaring inflation. In turn, this inflationary pressure could cause the Federal Reserve to raise interest rates more aggressively to combat rising prices.
Higher interest rates negatively affect bond prices, particularly those with longer durations like the ones in the Direxion Fund, which is heavily invested in U.S. Treasuries. As bond yields rise, the price of existing bonds typically falls, leading to a decline in the value of bond funds.
Research Direxion's Strategy. Learn about Direxion's approach to achieving 3 times the daily performance of the ICE U.S. Treasury 20+ Year Bond Index through derivatives like futures and swaps. You don't need to be a genius in mathematics or quantum physics to grasp the basic concepts. The fund uses leverage, but what type of leverage are they using, and what are the upsides and downsides?
Analyze performance, fees, and risks. Review Direxion's historical performance, expense ratio, and dividend yield to see whether they fit into your overall investment strategy. Consider how it fits into your overall portfolio and risk management approach.
Step 4: Place an order
Once your brokerage account is set up, you've worked out your budget, and your research is complete, you're ready to place an order. The next step is to go to your brokerage's order page and fill in the required information, including the type of order you want to place: a market order or a limit order.
Once your information has been added, click the button to place your order and become a shareholder. Here's a step-by-step guide to the entire process through Fidelity.
Holdings
Holdings of Direxion Daily 20+ Year Treasury Bull 3X Shares
Direxion Daily 20+ Year Treasury Bull 3X Shares' holdings primarily consist of U.S. Treasury bonds with maturities of over 20 years. The fund uses derivatives, including futures contracts and swap agreements, to achieve its leveraged exposure. According to Direxion's latest data, the index consists of bonds with the following time to maturity:
- 27-30 years remaining (45.42%)
- 24-27 years remaining (30.17%)
- 20-24 years remaining (24.42%)
How Direxion uses leverage to amplify returns
Let's say, for example, Direxion starts by buying 10 U.S. Treasury bonds at $1,000 each, totaling $10,000. To amplify the returns, the fund enters into futures contracts worth $20,000, leveraging an additional $20,000 to increase its exposure to the Treasury bonds. This brings the total exposure to $30,000.
If the underlying index moves up by 1% in a day, the $30,000 leveraged position will gain 3% of the initial investment ($10,000), resulting in a $300 gain. Conversely, if the index drops by 1%, the leveraged position would result in a $300 loss, demonstrating the amplified risk of using leverage.
Should I invest?
Should you invest in Direxion Daily 20+ Year Treasury Bull 3X Shares?
When you should consider investing in Direxion
You think interest rates will drop. When interest rates fall, the prices of existing bonds rise because their higher fixed-interest payments become more attractive compared to new bonds issued at lower rates. Since this fund is designed to triple the daily performance of long-term U.S. Treasuries, falling interest rates can significantly boost its returns.
You like the management flexibility of the ETF structure. ETFs hold a pool of assets that closely track a specific sector or subsector. In this case, the assets are more or less the same but with different financial contracts and derivatives. Trading financial derivatives can be extremely complicated for retail investors.
You want a hedge against the volatility and possible crash of the stock market. Direxion can serve as a hedge against equity market downturns and even stock market crashes. When stock markets are volatile or declining, investors often seek the safety of U.S. Treasury bonds, which can increase the fund's value. For example, due to the financial meltdown during the 2008 global financial crisis, money from around the world went into U.S. Treasury bonds, considered one of the safest assets in existence.
Why you might avoid investing in Direxion
You think U.S. debt is out of control. Many individuals feel the U.S. debt is already out of control and could lead to fiscal instability if it continues down the same path. This could result in higher interest rates, which, as mentioned, lead to lower Treasury bond prices, and that could have a detrimental effect on the fund.
You are a long-term investor. Direxion is more geared toward short-term investors who want to take advantage of fluctuations in the interest rate environment. For those looking to contribute to something more geared toward long-term investing and retirement, ETFs tied to indexes, such as the S&P 500 or MSCI Global Index, might be more suitable.
Dividends
Does Direxion Daily 20+ Year Treasury Bull 3X Shares pay a dividend?
Direxion pays a dividend. As of the time of this writing, recent dividends have included $0.5243 per share (December 2024), $0.43507 (September 2024), $0.43495 (June 2024), and $0.31979 (March 2024).
Expense ratio
What is Direxion Daily 20+ Year Treasury Bull 3X Shares' expense ratio?
Direxion's expense ratio is 0.91%, higher than the average for similar ETFs. The expense ratio represents the annual fee investors pay to cover the fund's operating expenses. For example, if you were to invest $10,000 in the fund, you would pay $91 annually in expenses. Higher expense ratios can affect overall returns, especially over the long term.
Historical record
Historical performance of Direxion Daily 20+ Year Treasury Bull 3X Shares
This fund's historical performance can be volatile due to its leveraged structure. Here's a summary of its performance over different periods:
| Time Period | Performance |
|---|---|
| 1 year | -35.82% |
| 3 years | -46.66% |
| 5 years | -29.87% |
| 10 years | -14.41% |
These figures illustrate the ETF's potential for significant short-term gains and highlight the risks associated with leveraged investments. Due to the compounding effects of leverage, long-term performance may not be as favorable.
Leveraged ETFs, such as the Direxion Daily 20+ Year Treasury Bull 3X Shares, aim to amplify the daily returns of an underlying index by using financial derivatives and debt. They're rebalanced daily to maintain a fixed leverage ratio, such as 2 times or 3 times the daily performance of the target index.
Daily rebalancing means gains or losses from each day are compounded, affecting the ETF's overall performance. For instance, a 1% gain in the index translates to a 3% gain in a 3x leveraged ETF, and a 1% loss results in a 3% loss.
While this can lead to significant short-term gains, long-term performance can suffer due to volatility drag, where daily fluctuations erode returns. So, leveraged ETFs are generally not suitable for long-term investing.
Related investing topics
The bottom line on Direxion Daily 20+ Year Treasury Bull 3X Shares
Investing in the Direxion Daily 20+ Year Treasury Bull 3X Shares can be a powerful tool for traders with a strong, short-term, bullish outlook on U.S. Treasuries. However, due to its leveraged nature, it is crucial to understand the risks and actively manage this investment.
Direxion offers the potential for amplified gains, but it also comes with higher volatility and a higher expense ratio. As with any investment, thorough research and a clear understanding of your risk tolerance are essential before making a decision.
FAQ
Direxion Daily 20+ Year Treasury Bull 3X Shares FAQ
What is the Direxion Daily 20+ Year Treasury Bull 3X Shares?
The Direxion Daily 20+ Year Treasury Bull 3X Shares is an ETF designed to provide 3 times (3x) the daily performance of the ICE U.S. Treasury 20+ Year Bond Index. It achieves this through financial derivatives, including futures contracts and swap agreements, which leverage the ETF's exposure to long-term U.S. Treasury bonds.
How do I invest in Direxion?
To invest in ETFs like Direxion, you would first open a brokerage account with a platform, such as E*TRADE or Robinhood, that offers access to a wide range of ETFs. Once your account is set up, research the specific Direxion ETF you're interested in and learn about its strategy, risks, and performance. Once all that has been done, place a buy order through your brokerage platform.
What are 3x bull shares?
The 3x bull shares are leveraged ETFs that aim to deliver 3 times (3x) the daily returns of their underlying index or asset. These ETFs use financial derivatives to amplify their exposure, meaning if the underlying index increases by 1%, the 3x bull share is designed to go up by 3%.
However, the leverage also works in the opposite direction. So, if the index falls by 1%, the 3x bull share will also fall by 3%, making it suitable only for investors who can actively manage investments and tolerate risk and volatility.
