It Could Be Perfect Timing For This New ETF


A couple of things previously highlighted in this space are that some new exchange traded funds come to market with the benefit of good timing and that European bank stocks are getting smoked this year.

Marrying those themes is the new Direxion Daily European FinancialsBear 1x Shares (NYSE: EUFS), which debuted Wednesday. The new ETF is designed to deliver the daily inverse performance of the MSCI Europe Financials Index. So if that index falls one percent, then EUFS should rise by 1 percent.

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The MSCI Europe Financials Index is a free float-adjusted, market capitalization weighted index and represents securities of large capitalization and mid-capitalization companies across developed market countries in Europe. As of June 30, 2016, the Index consisted of 98 constituents with an average market capitalization of $16.16 billion and a median market capitalization of $10.51 billion, according to Direxion.

The index EUFS tracks is not a dedicated Eurozone index as U.K. and Swiss banks combine for about 43 percent of its weight. The index's top 10 holdings combine for about 39 percent of its weight.

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EUFS debuts just a couple of weeks after Direxion launched a double-leveraged bullish equivalent, the Direxion Daily European Financials Bull 2X Shares (NYSE: EUFL).

Italy is widely seen as trouble spot among European bank stocks. As non-performing loans (NPLs) creep higher, investors mulling a stake in Italy ETFs or other Italy vehicles are pondering when reforms aimed at righting the banking sector there will be implemented and how long it will take those reforms to have a noticeable, positive impact.

Italy's most recent NPL plan is not reminiscent of TARP during the financial crisis in that the country isn't looking to sell bad loans. However, complexities surrounding Italy's efforts to deal with its NPL crisis could limit participation by some of the banks residing in EUFL's index.

Italy is he seventh-largest country weight in the index tracked by EUFS and EUFL.

For traders looking to initiate tactical, bearish positions on EUFS makes sense, particularly for those looking to avoid leverage.

Since it does not employ leverage, compounding is less magnified compared to leveraged inverse ETFs, according to Direxion.

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