Direxion, a prominent provider of leveraged and inverse exchange-traded funds (ETFs), has announced plans to implement a reverse split for its Direxion Daily MSCI South Korea Bull 3X Shares (KORU) ETF. The 1-for-10 reverse split, scheduled to take effect after market close on February 7, 2025, will significantly impact the fund's share structure while maintaining its overall market value.
This corporate action will result in every ten shares of KORU being consolidated into one share, leading to an approximate 90% decrease in the total number of outstanding shares. Consequently, the fund's per-share net asset value (NAV) and opening market price are expected to increase by a factor of ten when trading resumes on a split-adjusted basis on February 10, 2025.
The reverse split announcement carries several implications for current and potential investors in the KORU ETF. For existing shareholders, while their total investment value will remain unchanged, the number of shares they own will decrease proportionally. This adjustment may result in fractional shares, which cannot be traded on the NYSE Arca. To address this, Direxion will redeem these fractional shares for cash at the fund's split-adjusted NAV, potentially triggering tax consequences for affected shareholders.
The decision to implement a reverse split often aims to increase the share price of an ETF, which can have various benefits. A higher share price may attract a broader range of investors and potentially improve trading liquidity. Additionally, some investors and institutions have minimum share price requirements for investments, and this move could bring KORU into compliance with such thresholds.
It's important to note that KORU is a leveraged ETF, designed to provide three times the daily performance of the MSCI Korea 25/50 Index. The fund's leverage factor and investment objective will remain unchanged by the reverse split. However, the nature of leveraged ETFs means they carry higher risks and are primarily intended for sophisticated investors engaged in short-term trading strategies.
The reverse split also necessitates administrative changes, including a new CUSIP number for the fund. The updated CUSIP (25461A387) will take effect on February 10, 2025, replacing the current identifier. This change is crucial for tracking and trading purposes, and investors should take note to avoid any confusion in their portfolio management systems.
While the reverse split does not directly affect the fund's investment strategy or exposure to the South Korean market, it underscores the dynamic nature of ETF management and the ongoing efforts by issuers like Direxion to maintain efficient and attractive investment vehicles. The South Korean market has been of particular interest to global investors due to its significant role in the technology sector and its economic ties to major global economies.
As with any investment decision, particularly those involving leveraged products, investors are advised to carefully consider their risk tolerance and investment objectives. Direxion emphasizes the importance of understanding the complexities of leveraged ETFs and encourages investors to utilize educational resources provided by the company to make informed decisions.
The announcement of this reverse split serves as a reminder of the evolving landscape of ETF products and the need for investors to stay informed about changes that may affect their portfolios. As the ETF market continues to grow and mature, such corporate actions are likely to become more common, reflecting issuers' efforts to optimize their product offerings in response to market conditions and investor needs.
