Leveraged Russia Fund Down 50% in a Week Is Liquidated

(Bloomberg) -- One of the largest issuers of leveraged and inverse exchange-trade funds is shuttering an amped-up Russia product after sanctions derailed trading in the country's assets.

Direxion Shares ETF Trust said late Monday it will liquidate and close the Direxion Daily Russia Bull 2X Shares ETF (ticker RUSL), a U.S.-listed fund that seeks to deliver double the daily performance of the Market Vectors Russia Index. Volatility and “restrictions on Russian securities resulting from sanctions and other measures” are behind the move, the firm said.

RUSL slumped 16% Monday, taking its drop in the past five trading days to about 50% as Russian markets were plunged into turmoil following the nation's invasion of Ukraine and subsequent U.S. and European sanctions. It's the only existing leveraged Russia fund, according to data compiled by Bloomberg.

Direxion suspended creation of new shares in the ETF last week after the fund saw $23 million of new cash in a day, its best inflow since 2018. That influx means assets now stand at $24 million, though they were as high as $65 million in mid-February and $274 million back in 2015. The decision to close was based on a recommendation from adviser Rafferty Asset Management.

“The board determined, after considering Rafferty's recommendation, that it is in the best interests of the fund and its shareholders to liquidate and terminate the fund, as it could not conduct its business and operations in an economically efficient manner over the long-term,” Direxion said in a statement.

A spokesperson for the firm didn't immediately respond to a request for further comment from Bloomberg outside of business hours.

The Moscow stock market remained shut on Tuesday after closing a day earlier as the country reels from financial sanctions. The VanEck Russia ETF (RSX) and the iShares MSCI Russia Capped ETF (ERUS) plunged 30% and 28%, respectively, in the U.S. on Monday.

“It's never easy to close an ETF but I think Direxion is doing the right thing here,” said Athanasios Psarofagis, a Bloomberg Intelligence ETF analyst. “With the market closure, sanctions, and uncertainty there's no guarantee this fund would be able to meet its objective and behave as expected. And rather than expose investors to that, the more prudent route is to close.”

Leveraged and inverse exchange-traded products use financial derivatives to pump up returns. They have been at the heart of meltdowns in volatility, in oil, in gas, and others but their assets and trading volumes have boomed during pandemic driven by retail traders.

Exchange trading in RUSL will cease on March 11, Direxion said.