Direxion has launched a new ETF providing leveraged exposure to companies aligned with the clean energy investment theme.
The ETF offers leveraged daily exposure to a global portfolio of companies aligned with the clean energy investment theme.
The Direxion Daily Global Clean Energy Bull 2X Shares (KLNE US) has been listed on NYSE Arca and comes with an expense ratio of 1.07%.
David Mazza, Managing Director, Head of Product at Direxion, said: “While the long-term trend toward more sustainable energy sources continues to increase, stocks in this sector are likely to remain volatile as macro drivers impact moves in the short-term.
“KLNE allows traders to take a bold position in companies exposed to solar, wind, and other renewable energy sources.”
Methodology
The fund delivers twice the daily performance of the S&P Global Clean Energy Index which selects its constituents from a universe of developed market stocks with market capitalizations greater than $300 million and average daily trading volumes above $3m.
Index provider S&P Dow Jones Indices harnesses insights from its TruCost subsidiary to determine which firms are aligned with a range of clean energy industries including biofuel & biomass, ethanol & fuel alcohol, fuel cells, geothermal, hydroelectric, photovoltaic cells, solar, and wind, among others. Eligible companies include energy producers as well as those developing equipment and technology for use in the clean energy industry.
S&P DJI assigns each firm with a clean energy exposure score (between 0 and 1) based on its business description and its most recent reported revenue by segment. The methodology targets a total of 100 stocks for index inclusion by selecting all stocks with exposure scores of 1, then selecting the largest stocks with exposure scores between 0.75 and 1, and then selecting the largest stocks with exposure scores between 0.5 and 0.75 until the constituent count is met.
A screen that removes firms with poor carbon-to-revenue footprints, as well as a requirement that the index maintains a weighted average exposure score above 0.85, means that the actual final constituent count may be less than 100.
Constituents are weighted according to the product of their exposure score and float-adjusted market capitalization subject to individual caps that vary depending on exposure score – constituents with an exposure score of 1, between 0.75 and 1, and between 0.5 and 0.75 are capped at 8%, 6%, and 4%, respectively.
As of the end of July, the index consisted of 81 constituents with over half (55.7%) of the index by weight allocated to stocks from the utilities sector and a further quarter (23.4%) to stocks from the industrials sector. Information technology companies also play a notable role with a combined weight of 18.8%.
The top ten constituents account for approximately half of the total index weight with the largest positions being Vestas Wind Systems (8.0%), Enphase Energy (6.7%), Orsted (5.8%), Plug Power (4.8%), Xcel Energy (4.2%), NextEra Energy (4.1%), SolarEdge Technologies (4.0%), and Iberdrola (4.0%).
Direxion, which has developed an extensive range of geared single country, regional, and sector-based ETFs, is increasingly adding thematic exposures to its leveraged product suite. Its recent launches include inverse and leveraged products targeting 5G communications, cloud technology, travel and vacation, and robotics & AI investment themes.
Leveraged ETFs are intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results. Leveraged ETFs tend to decay in value if held for an extended period of time, potentially leading to significant losses, especially in volatile but range-bound markets.