Leveraging An Already Hot ETF Trade

Markets Benzinga

Chinese internet stocks, including behemoth Alibaba Group Holding Ltd (BABA), received plenty of attention in the run-up to Singles' Day, but there are other reasons for investors to consider Chinese internet stocks.

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For example, the world's second-largest economy is known for being home to companies that are considered to be the Amazons (Amazon.com, Inc. (AMZN)), Facebooks (Facebook Inc (FB)) and Googles (Alphabet Inc (GOOG) (GOOGL)) of China. This theme is easily accessible via exchange-traded funds, and for the risk-tolerant trader, there is now an avenue for applying leverage to the China internet trade.

Leveraging The China Internet Trade

The Direxion Daily CSI China Internet Index Bull 2X Shares (NYSE: CWEB) debuted earlier this month as the first leveraged ETF tracking Chinese internet stocks. The new CWEB looks to deliver double the daily performance of the CSI Overseas China Internet Index.

The securities included in the Index are primarily listed outside of China, have been listed for at least three months and meet one of the three following criteria: 1) the company is incorporated in mainland China; 2) the operation center for the company is in mainland China; or 3) at least 50 percent of the revenue from the company is from mainland China. The Index Provider then removes securities that during the past year had a daily average trading value of less than $500,000 or a daily average market cap of less than $500 million, according to Direxion.

That index trades at a lower price-to-earnings ratio than the benchmark U.S. Internet Index while offering better earnings-growth prospects.

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Other Holdings

Other marquee names in CWEB include Baidu Inc (ADR) (BIDU), JD.Com Inc(ADR) (JD) and Ctrip.com International LTD (ADR) (CTRP).

The Chinese internet sector is booming with continued growth of not only the internet user population, but the full adoption of web-based online retailer models," said Sylvia Jablonski, managing director at Direxion, in a statement. "The launch of CWEB is timely, as companies like Alibaba, which has just announced quarterly earnings, along with Tencent Holdings and Baidu, gain popularity among traders.

CWEB's Index Weightings

CWEB's underlying index allocates nearly two-thirds of its weight to internet software and services stocks with another 21.2 percent devoted to internet marketing companies. Software and diversified consumer services names represent almost 11 percent of the new double-leveraged ETF's index.

Like all leveraged ETFs, this Direxion product is intended only for investors with an in-depth understanding of the risks associated with seeking leveraged investment results, and who plan to actively monitor and manage their positions. There is no guarantee that the Fund will meet its objective, added Direxion.

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