Sanctions Spark Activity In Leveraged Russia ETFs

Russian stocks and the ruble slumped Thursday on news of fresh sanctions against the country by the Trump administration.

Predictably, Russia's reaction to the new sanctions was harsh, perhaps prompting investors to ditch Russian assets.

“But investors did not wait for details, driving the Russian ruble to a two-year low against the dollar and sending shares in Russian companies plummeting on the stock market,” reports The Washington Post.

What Happened

Geopolitical headlines can be type of short-term events leveraged exchange traded funds either thrive or sag on. That is proving to be the case for the leveraged Russia funds, the Direxion Daily Russia Bull 3X Shares RUSL and the Direxion Daily Russia Bear 3X Shares RUSS.

The bullish RUSL tries to deliver triple the daily returns of the MVIS Russia Index (MVRSXTR) while the bearish RUSS attempts to deliver triple the daily inverse returns of that benchmarks.

Why It's Important

Following Thursday's sanctions news, RUSL fell a bout 2 percent on volume that was more than double the daily average. That extends RUSL's month-to-date slide to over 20 percent, cementing the fund's status as Direxion's worst-performing bullish leveraged ETF to this point in August.

Conversely, the bearish RUSS is thriving as sanctions against Russia roil the ruble and the country's equity markets. That ETF gained 2.24 percent yesterday on above-average volume, extending its month-to-date gain to 20.46 percent. With that, RUSS is easily the best-performing leveraged bearish ETF in the Direxion lineup to start August.

What's Next

Traders' treatment of leveraged ETFs is apt to change in short order. As it should be. After all, leveraged ETFs like RUSL and RUSS are intended to be short-term trades, not long-term holds.

Still, recent data indicate some traders were betting on more U.S. sanctions against Russia. Over the past month, the bullish RUSL is averaging daily outflows of nearly $970,000 while the bearish RUSS averaged daily inflows of more than $56,000 over that period, according to Direxion data.

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