FAZ is based on the Russell 1000® Financial Services Index.
Which is; Index Sector Weightings % Banks 29.24 Real Estate Investment Trusts 18.32 Insurance 15.56 Capital Markets 10.79 IT Services 10.40 Diversified Financial Services 9.70 Consumer Finance 4.25 Real Estate Management & Development 0.67 Professional Services 0.45 Misc 0.62
It's the Russell 1000® Financial Services Index which is utilized as the benchmark. They don't short banks in the open market!
This whole thing works similar to swaps I think. It's a overly complex shifting of funds designed so no one can understand what really happens.
Here's how Rafferty Asset Management, LLC explains how they manage FAS & FAZ for direxion investments.
Each Bull and Bear Fund invests significantly in swap agreements, forward contracts, reverse repurchase agreements, options, including futures contracts, options on futures contracts and financial instruments such as options on securities and stock indices options, and caps, floors and collars. Rafferty uses these types of investments to produce economically “leveraged” investment results. Leveraging allows Rafferty to generate a greater positive or negative return than what would be generated on the invested capital without leverage, thus changing small market movements into larger changes in the value of the investments of a Fund. http://etfdailynews.com/2009/04/27/how-does-a-3x-etf-gain-3-times-the-index-performance/#more-1661
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.