Direxion Launches AI ETFs Amid $12.4B Leveraged Fund Inflow

Direxion launches leveraged AI ETFs amid cooling AI stock rally, targeting sophisticated investors with short-term strategies.

By Max Weldon

5/15, 11:45 EDT

Key Takeaway

  • Direxion launches leveraged and inverse ETFs targeting AI stocks, aiming to double daily returns of the Solactive US AI & Big Data Index.
  • The new ETFs come amid a $12.4 billion inflow into leveraged funds this year, despite a cooling rally in AI stocks.
  • Investors show caution with a $1.4 billion withdrawal from thematic funds, reflecting concerns over high valuations in the AI sector.

Introduction to AI and Big Data ETFs

Professional investors with strong opinions on the future of artificial intelligence (AI) stocks now have new tools at their disposal to leverage their bets. The launch of the Direxion Daily AI and Big Data Bull 2X Shares ETF and its bear counterpart, aiming to double the daily returns of the Solactive US AI & Big Data Index, marks a significant moment for those looking to capitalize on the AI sector's explosive growth. These funds are designed for short-term moves, reflecting the daily performance of the AI and Big Data sectors without accumulating gains over time. This strategy comes as AI stocks have become a focal point for investors, driven by the technology's potential to revolutionize industries and society at large.

Leveraged Funds Attracting Attention

The introduction of these ETFs by Direxion aligns with a broader trend of increasing interest in leveraged funds, which have seen significant inflows of $12.4 billion this year. This surge in interest is set against the backdrop of a cooling rally in AI stocks, prompted by concerns over high valuations. Edward Egilinsky, Managing Director at Direxion Funds, emphasized the enduring appeal of the AI sector, stating, "AI is here to stay and people are looking to trade that on both the bullish and bearish directions." The Solactive AI index, which these ETFs track, has seen a remarkable 120% increase since late 2022, showcasing the sector's rapid growth and the diverse range of companies it encompasses, from tech giants to emerging players.

Investor Caution and Market Dynamics

Despite the enthusiasm for leveraged funds, there's a noted shift among ETF investors towards caution, particularly in thematic funds like those focusing on AI, automation, and innovation. This year has seen a withdrawal of $1.4 billion from such funds, contrasting with the nearly $2 billion deposited last year. Egilinsky advises that the new Direxion ETFs are aimed at sophisticated investors who understand the risks of leverage and are prepared for short-term losses. This cautionary stance is underscored by the Solactive index's forward price-earnings ratio of 29.3 times, which, while indicative of high expectations for AI companies, also highlights the challenges of sustaining such valuations.

Street Views

  • Edward Egilinsky, Direxion Funds (Neutral on AI stocks):

    "AI is here to stay and people are looking to trade that on both the bullish and bearish directions... Irrespective of the short-term moves, there will always be interest in this sector." "Multiples for these companies are high. Sustaining valuations will be key."