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Investigation: Direxion Daily Real Estate Bear 3x Shares (DRV)

Fitapelli Kurta is investigating customer complaints and potential lawsuits related to broker recommendations of Direxion Daily Real Estate Bear 3x Shares (DRV), which is a short term inverse leveraged ETF linked to the real estate market.  Direxion Daily Real Estate Bear 3x Shares (DRV) is an extremely speculative and risky product, which is often misunderstood by the brokers who recommend its purchase.   

Direxion Daily Real Estate Bear 3x Shares (DRV) is designed to be held for only one day and we are interested in speaking to investors who lost money by holding the product for periods longer than one day.  It attempts to deliver three times the daily inverse, or reverse, returns of the MSCI REIT index.

Direxion Daily Real Estate Bear 3x Shares (DRV) is a type of ETF known as an “inverse, leveraged ETF.”  ETFs, or exchange traded funds, like mutual funds, offer investors an opportunity to pool their money into a fund that makes investments in a particular asset class (i.e. in this case REITs).  Unlike mutual funds, ETFs are traded on an exchange and at market prices.  The goal of ETFs, such as Direxion Daily Real Estate Bear 3x Shares (DRV), is to track a particular index or asset class.  Inverse ETFs are a type of ETF, which track the opposite of an index (i.e. when the market decreases these funds increase and vice versa).  Leveraged ETFs, such as Direxion Daily Real Estate Bear 3x Shares (DRV), are ETFs that use leverage so the tracking effect is multiplied.  So for example, an inverse 2X leveraged ETF should increase 2X the decrease of the index that it is tracking.

Inverse leveraged ETFs, such as Direxion Daily Real Estate Bear 3x Shares (DRV), “reset” daily, which means that they are designed to achieve their stated objectives (i.e. tracking an index) only on a daily basis and no longer than one day.  In fact the prospectus for ETFs, such as Direxion Daily Real Estate Bear 3x Shares (DRV), warns investors that if the ETF is held for periods longer than one day, returns will begin to differ from the underlying index.  It is possible, therefore for an index to be flat (i.e. returning a zero return), but the ETF that is held over the same period may be down considerably.

Brokers often market inverse leveraged ETFs, such as Direxion Daily Real Estate Bear 3x Shares (DRV), to clients as a way to hedge against market losses.  These brokers also recommend that Direxion Daily Real Estate Bear 3x Shares (DRV) be held for extended periods of time.  This advice is always inappropriate because products such as Direxion Daily Real Estate Bear 3x Shares (DRV) are not designed to be held for periods of longer than one day.  Thus holding securities such as Direxion Daily Real Estate Bear 3x Shares (DRV) makes little sense from an investment prospective – even its own prospectus will state this.

In a period where the overall market is thriving, brokers recommend Direxion Daily Real Estate Bear 3x Shares (DRV) as a long term “hedge” without really understanding the product.  Direxion Daily Real Estate Bear 3x Shares (DRV) should never be held for periods of longer than one day as doing so would be a reckless “strategy,” which could ultimately end in catastrophic losses.

Our firm has successfully prosecuted cases involving brokers that have recommended Direxion Daily Real Estate Bear 3x Shares (DRV).  If you or someone you know lost money investing in Direxion Daily Real Estate Bear 3x Shares (DRV), we are interested in speaking to you.