Direxion, a leading provider of leveraged and inverse ETFs, has announced a reverse split for its Direxion Daily MSCI South Korea Bull 3X Shares (KORU), set to take effect after the market closes on February 7, 2025. This move will consolidate every ten existing shares into one new share, significantly reducing the total number of outstanding shares by approximately 90%. The adjustment is intended to modify the fund's share price without impacting its overall market value, except for the effects of fractional share redemptions.
Following the reverse split, KORU's per-share net asset value (NAV) and opening market price are expected to increase tenfold. This adjustment could make the ETF more appealing to certain investors by aligning its price with prevailing market standards. Investors will see a proportional decrease in the number of shares they hold, though their total investment value remains unchanged. For example, an investor with 1,000 shares at $1 per share would end up with 100 shares at $10 per share post-split, preserving the original $1,000 investment value.
The reverse split will also introduce a new CUSIP number (25461A387) for KORU, effective February 10, 2025, essential for accurate tracking and trading. A notable aspect of this change is the potential creation of fractional shares, which cannot be traded on the NYSE Arca. Direxion plans to redeem these fractional shares for cash at the split-adjusted NAV, a process that may have tax implications for shareholders.
Additionally, the reverse split might result in an 'odd lot unit'—a collection of fewer than 50,000 shares to form a creation unit. Direxion will provide a one-time opportunity for authorized participants to redeem this odd lot unit at the split-adjusted NAV or the NAV on the redemption date.
KORU, like all Direxion leveraged ETFs, targets sophisticated investors who actively manage their positions and understand the risks of leveraged investments. These ETFs are designed for daily objectives, not long-term holding. The reverse split reflects broader ETF market trends where fund managers adjust share structures to maintain optimal pricing and liquidity. For investors focused on South Korean equities, this change could influence trading strategies and portfolio allocations, especially for those using leveraged products for market exposure.
This development underscores the evolving nature of the ETF landscape and the importance of staying informed about structural changes in investment products. Investors are advised to consider their investment goals and risk tolerance carefully, particularly with leveraged ETFs that can magnify gains and losses. While the reverse split does not alter KORU's fundamental strategy, it highlights the dynamic aspects of ETF management and the necessity for investors to regularly assess their holdings and understand the mechanics of their investment products.
