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Rating:Is Direxion's Reverse Split Decision a Good Move? Not Rated 0.0 Email Routing List Email & Route  Print Print
Tuesday, June 22, 2010

Is Direxion's Reverse Split Decision a Good Move?

by: Sean Hanna, Editor in Chief

When asked how many slices he wanted from his pizza, Yogi Berra once said that the slicer had "better make it four, because I can't eat eight." Share splits remain as confusing a topic for investors as ever.

Chuck Jaffe spins an article out of mutual fund stock splits and reverse stock splits in Tuesday's WSJ Fund Track column, pointing out that the do matter at least a little. The spark for the split take was Direxion's decision to run one-to-five reverse splits for four of its leveraged ETFs: Direxion Daily Energy Bear 3x Shares (ERY), Daily Real Estate Bear 3x Shares (DRV), Daily Small Cap Bear 3x Shares (TZA) and Daily Technology Bear 3x Shares (TYP).

Those seeking a refresher course on stock splits can get a quick brief from the article.

Why are ETF share splits more meaningful than old-fashioned stock splits? Well, in the case of leveraged ETFs, Jaffe argues that low NAVs lead to a greater chance for discounts and premiums to develop. He also says that "low share prices also allow the smallest fast-money traders to get in and out with very little skin in the game." 

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