This is a leveraged ETF designed to track three times the daily return of a US aerospace and defense industry index. It uses derivatives to reflect short-term moves in the aerospace and defense sector at an amplified scale, and its exposure is reset on a daily basis.

It suits active traders who want to make leveraged bets on the short-term direction of the aerospace and defense sector and who are willing to accept very high risk.

It is a passively managed (index-tracking) ETF operated by Direxion.

The fund builds its exposure with derivatives to track three times the daily return of a US aerospace and defense industry index, and it resets its leveraged exposure every day. Because of this daily reset structure, a prolonged period of high volatility produces a compounding effect, causing cumulative returns to diverge significantly from a simple three times the index return.

• 3x daily leverage on an aerospace and defense index
• Leverage structure that is reset every day

Assets under management (AUM) stand at $322.9M, and the expense ratio is 0.96% per year.

Compared with ITA and XAR, which invest in aerospace and defense without leverage, the main points of comparison are the leverage multiple and volatility.

Leveraged sector products reflect index moves at an amplified scale, so they typically post large gains in rising markets and large losses in falling markets. Aerospace and defense stocks are sensitive to defense budgets, the geopolitical environment, and order wins, which makes them highly volatile, and the leverage effect can be even more pronounced.

Fund flows in leveraged products vary widely depending on demand for short-term directional bets, and short-term trading money sometimes flows in when aerospace and defense momentum strengthens. It is also worth noting that performance can differ greatly depending on the volatility environment.

The potential for short-term leveraged gains is both its strength and its risk, and the daily reset compounding effect and the sector's inherently high volatility are key considerations.

For investing in aerospace and defense without leverage, direct substitutes include ITA and XAR, and for different ways of gaining defense and aerospace exposure, products such as PPA are also worth comparing. The three products shown in the table, TQQQ, SSO, and SOXL, track the Nasdaq, the S&P 500, and a semiconductor index with leverage, respectively, so their underlying indexes differ. What sets this ETF apart is its leveraged structure that tracks an aerospace and defense index at three times the daily return.

Here are the points to review before investing in DFEN. Short-term leveraged gains are attractive, but amplified losses, the compounding effect, and unsuitability for the long term should be confirmed in advance. It is best to approach the fund only after fully understanding its leverage structure.

Amplified losses when the index falls and the compounding effect from the daily reset are the main variables for performance, and aerospace and defense stocks are highly volatile because they are sensitive to defense budgets and the geopolitical environment. Leveraged products are not suitable for long-term holding and carry a high risk of principal loss.

It is a suitable candidate for risk-tolerant traders who want to make leveraged bets on the short-term direction of the aerospace and defense sector. For investing without leverage, consider products such as ITA and XAR, and for short-term leveraged bets, it is advisable to choose this product only after fully understanding its structure.