Dion Money Management Blog   Money Management for Retirees and Their Families

The S&P 500, after starting the week down over 2.50% on Monday and Tuesday, has recovered somewhat to be off about 0.9% through yesterday. The market has been up for several consecutive weeks now so a pullback is expected. Of course, market analysts will always come up with a suitable reason for the sell off and the usual suspects are certainly out there; Greece, Goldman Sachs, and financial regulation, just to name a few.

As investors, I don’t think we should focus on all the negative news that’s out there. Rather let’s focus on what’s important. I believe this recovery will be longer and stronger than most analysts expect. Of the first 122 S&P 500 companies that reported Q1 earnings, 84% had positive earnings surprises and 68% positive revenue surprises. Further, whisper estimates for this year put the S&P earnings near $90, and Thomson Reuters puts 2011 at $99. At a reasonable 15 P/E ratio, the S&P 500 could reach 1,350 and 1,485, respectively in 2010 and 2011.

Here are some more positive developments investors should consider. March’s broad-based increase in the leading indicators was the 12th straight gain. It’s now risen more than it did in the past two slow recoveries, up 12% on the year, the most since the severe recession of the early eighties. Durable goods orders rose the most since the recession began. March new and existing home sales surprised, jumping 27% and 7%, respectively. Although much of the buying was driven by an expiring tax credit, 72% of Americans told a recent Gallup poll now is a good time to buy. And finally, today, the first reading of Q1 GDP came out a healthy 3.2%, only slightly less than expected and will probably be revised up in the weeks ahead.

What I said last week bears repeating. One of the transitions I have been expecting to see as this rally matures is a rotation to large cap quality stocks. Similar to 2004, which provides the closest example of a maturing rally, the evidence of an improving economy and the prospect of future rate hikes prompted investors to shift from small-cap stocks to larger ones. We continue to hold high quality large cap funds like Federated Capital Appreciation (FEDEX) and Fidelity Fund (FFIDX) in many diversified portfolios. The companies that make up these funds are large, blue chip companies that get a significant amount of their revenues from overseas markets. This insulates them from any potential weakness in domestic consumer spending and takes advantage of the burgeoning emerging markets.

Welcome to “Don Dion’s Daily ETF Winners and Losers.” Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

Market Vectors Gold Miners ETF(GDX) 1.2%

Playing the gold miners this week has proved to be a worthy endeavor thanks to good earnings reports from heavyweights such as Barrick(ABX). On Friday, the gains continued with gold moving higher, even though stocks moved lower. Gold miners have sometimes tracked with stocks rather than gold, but this week they went with the metal and GDX is outperforming SPDR S&P 500(SPY) by about 7% for the week.

iPath S&P 500 VIX Short-Term Futures ETN(VXX) 4.4%

Friday has been another choppy day of trading after U.S. GDP numbers come in slightly below analyst expectations and Goldman Sachs(GS) (GS) gets whacked. In response to the uneasiness, investors are driving the fear index higher.

Global X Silver Miners ETF(SIL) 0.7%

Friday has been a strong day for the precious metals industry. For the first time, the ETF designed to track the top players in the silver industry have managed to score a spot on the winners and losers list.

SIL is one of several new funds from Global X designed to track precious and base metal producers.
Losers

SPDR S&P Semiconductor ETF(XSD) -3.9%

Despite a number of strong reports, investors have not been kind to the tech industry throughout this most recent earnings season.

During early Friday trading XSD’s top holding, International Rectifier(IRF), was down more than 7% despite turning to profit in the most recent quarter. Fellow top holdings, LSI(LSI) and Texas Instruments(TXN) were down nearly 4% and 3% respectively.

United States Natural Gas Fund(UNG) -1.9%

Natural gas prices continued to reel after Thursday’s disappointing storage numbers from the Energy Information Administration.

Investors should steer clear of UNG, which is trading in line with a level of support which has been tested four times over the past month. A dip below this area of support, which is its all-time low, could lead to a larger breakdown.

iShares Dow Jones US Oil Equipment Index Fund(IEZ) -1.8%

As oil from the spill of the coast of Louisiana makes contact with land, President Obama has placed a halt on all new offshore drilling in U.S. waters until the cause for the accident is determined.

IEZ was strong last week and could still see some bright spots in the near future. Until the mess offshore is cleared up, the outlook for this fund is uncertain, but long-term investors may find prices attractive.

Disclaimer

Given his impressive knack for making money, it is no wonder that the ears of investors around the globe perk up when Warren Buffett opens his mouth — but what Buffett says does not always coincide with what he does.

Over the past several months, Buffett has on a number of occasions diverged from his teachings in order to do what he feels is best for his company.

At the end of 2009, Buffett expressed his disapproval for Kraft Food’s (KFT) stock-heavy bid for Cadbury. In the past, the investor had opposed deals that were funded using an excessive amount of company shares. His concerns stem from his belief that an influx of new stock dilutes the voting power of existing shareholders. Also, the injection of extra supply of stock puts pressure on share price, driving it lower.

This lesson was pushed by the wayside, however, when Buffett decided to buy the remaining stake of Burlington Northern Santa Fe Railroad for $34 billion. Buffett not only used company stock to fund the largest deal in Berkshire Hathaway’s (BRK.A) history, but at the start of 2010, he also received shareholder approval for a 50-for-1 split on Berkshire Hathaway B Class Shares (BRK.B).

More recently, the ongoing debate over financial reform has highlighted another situation where Buffett blatantly diverges from his own rulebook.

Right now, Warren Buffett is opposed to Washington’s proposed plan to reform the U.S. financial system. One particular area of concern for the Nebraska native is Congress’ bold plan to regulate the derivative industry. As the proposed bill currently stands, companies will have to offer up collateral for derivative contracts to protect against potential losses.

Fearing the detrimental effects caused by Congress’ actions, Buffett has strongly urged Congress to include a provision to the bill that would exempt current derivatives from the proposed changes.

Buffett’s apprehension toward derivative reform is interesting considering his past view of this particular slice of the market. In Berkshire Hathaway’s 2002 annual report, the Oracle of Omaha used strong words when describing derivatives, calling them “time bombs” and “financial weapons of mass destruction.”

After using this type of harsh rhetoric to describe derivatives, one would think it was safe to assume that Buffett steers clear of these instruments entirely. However, this assumption would be incorrect. While many think Berkshire Hathaway’s success stems solely from its successful investment portfolio which includes household names like Coca-Cola(KO), Wells Fargo (WFC) and Proctor and Gamble(PG), Buffett’s firm has also expanded its purse by managing a massive derivative portfolio valued at $63 billion, some of which are used by MidAmerican Energy to hedge energy prices.

Given Buffett’s sizable exposure to these “weapons of mass destruction,” it is no surprise that Buffett is at odds with Washington over the proposed plan to regulate the way they are traded.

Warren Buffett’s number one rule is “don’t lose money.” As shown over the past few months, sticking to this rule has sometimes required the financier to bend or break others. This should not dissuade individuals from turning to him for general investing wisdom, since by following Buffett’s advice, investors can construct a portfolio that provides returns that are stable over the long term. But when it comes to government policy, it raises the question of whether his words or his actions are the most important to follow.

This weekend, Buffett will be in Omaha for the annual Berkshire Hathaway shareholder meeting. What do you feel is the most important topic the financier should cover at this convention?

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

Claymore/MAC Global Solar Energy Index ETF(TAN)  5.8%

The solar energy industry is seeing strong gains today after industry leader First Solar(FSLR) reported quarterly earnings that handily beat analyst expectations.

First Solar accounts for nearly 11% of TAN’s total portfolio. As I mentioned in an article this afternoon, investors need to be cautious playing solar energy in the near future. iShares MSCI Spain Index Fund(EWP) 3.5%

The Spain ETF has yo-yoed throughout this week as the European Union continues to mull a plan to bail out Greece.

Given the uncertainty surrounding the bailout and its performance over the past few weeks, I would advise even the gutsiest investors to steer clear of EWP. Until a clearer plan of action is established, wild swings should be expected

SPDR S&P Biotech ETF(XBI) 2.9%

On Thursday, the Food and Drug Administration approved Dendreon’s(DNDN) latest treatment to fight prostate cancer.

XBI, which has the most direct exposure to DNDN, and the good news also helped power the broad biotech industry higher.

United States Oil Fund(USO) 2.7%

An improving economic outlook and a strong market helped lift oil prices on Thursday, leading USO higher.

Rising oil prices were cited as a source of strength for Exxon Mobil(XOM) (XOM) in its quarterly earnings report. Fellow oil major Chevron(CVX) will report earnings Friday.

Losers

United States Natural Gas Fund(UNG) -8.3%

The Energy Information Administration released a new natural gas storage report Thursday that saw a storage increase of 83 billion cubic feet. Analysts had predicted an increase of 69 bfc. Last week, the numbers were optimistic and lead natural gas futures prices higher. As I warned Wednesday in an article, the bottoming process could take UNG lower, although the outlook for natural gas is improving.

iPath S&P 500 VIX Short Term Futures ETN(VXX)  -5.0%

Although the VIX saw a nice rise when the market took a hit at the start of the week, it has continued lower over the past two days.

VXX has caused nothing but losses for investors throughout this month and 2010. The fund’s epic downfall has been steep, and there is likely further to go. I strongly advise investors to avoid this fund.

Disclaimer

The first quarter earnings report from First Solar(FSLR) is shining a light on solar today, but the long-term outlook for the sector and Claymore/MAC Global Solar Energy(TAN) is cloudy.

Shares of FSLR increased by about 7% in after-hours trading Wednesday following the release of their first quarter earnings report. The company’s profits for the quarter beat expectations and sales are surging after a sluggish 2009. Shares continued to climb in morning trading, up as much as 17% at one point.

Solar companies in general are expected to see strong sales this earnings season but questions still remain about how healthy the longer term outlook for the industry is.

Of significance for the rest of the solar sector was FSLR’s outlook, which shows that the company believes there will be no significantly negative impact to business after Germany cuts solar subsidies in July. Strong demand is growing for solar products outside of Germany but there is still concern that solar companies will be hurt when the government stops supporting solar development there.

Despite FSLR’s confidence, there is still the concern that stiff competition between companies in the solar sector will drive profit margins downward.

Strong competition between firms from Asia, Europe and America could make it difficult to draw a large profit from a consumer base that is still in its incipient stages.

Also, some markets, such as Germany’s, still depend on government subsidies to help make solar purchases more cost effective. If subsidies disappear, firms may have to cut into profit margins in order to price solar products at a level where consumers will be able to purchase, install and use their solar systems for cheaper than they could with another energy type.

With the threat of Greek debt contagion spreading to other countries in Europe, governments in the euro-zone may be hard pressed to find money to subsidize solar projects. Even if the European government debt-crisis is quarantined to only Greece, governments in the euro-zone will still be faced with funding a bailout for the country and may have scant fiscal resources for supporting solar energy development.

In contrast though, there is the possibility that demand will pick-up for alternative energy products, solar included, in the United States. Climate and energy policy legislation will soon be a hot issue in Washington and President Obama, along with some of his supporters, believes that supporting clean energy will be a way to reduce unemployment.

Therefore, in terms of making a long-term investment in a solar ETF such as TAN or the similar but less heavily traded Market Vectors Solar Energy(KWT), the skies look cloudy at the moment. This is because even if demand for solar energy in Europe does not drop off and demand in America picks up, there is still the issue of competition between firms eating away at profit-margins.

Although the fundamentals for TAN and KWT are hazy, their charts provide a clearer idea for an investment strategy on the sector.

In the first weeks of April, it looked as though TAN and KWT were making a steady move upwards from the levels of long-term resistance that were tested multiple times in February and March.

In the second half of April though, both funds, which move almost in tandem, turned downward and are once again approaching long-established resistance levels. TAN is up nearly 5% today, but that only puts it about 10% above where it was trading last year at this time.

Investors interested in a play on the uncertain solar industry should be sure to get as much value as possible by buying shares near the levels at which they have habitually been bottoming, which for TAN is around $8 per share. This will work for short-term plays as well as for building a long-term position.

Disclaimer

The SEC’s focus on leveraged and active ETFs is not the only regulatory war waging within the ETF realm. Futures backed commodity ETFs are battling with the CFTC over the regulatory body’s efforts to enforce position limits on certain commodity markets.

With oil prices loitering around the $85 per barrel level, regulators are becoming increasingly concerned that speculators controlling a large slice of the market could manipulate prices, driving them to the debilitating levels last seen in 2008. In an effort to avoid this event, the regulatory body hopes to place even stricter limits on the number of contracts a single company, trader or investment vehicle can hold.

In response to the proposal, two top commodity ETF providers have adamantly voiced their concerns.

Citing the threat of increased prices and reduced liquidity for their respective lines of commodity-focused ETFs, both U.S. Commodity Funds and Deutsche Bank(DB), the company behind the indexes for PowerShares commodity funds, have each written letters to the regulatory body seeking to quash the proposal.

Both companies’ letters propose an alternative regulatory strategy that would exempt passive, long-only index funds such as theirs from the limits.

PowerShares’ DB suite includes eight futures backed products that track commodities ranging from agriculture to precious metals. U.S. Commodities Funds offers seven funds that provide investors with exposure to oil, natural gas, heating oil and gasoline.

This is not the first time that these two firms have been forced to alter their products in order to comply with this regulatory body.

Last summer, one of U.S. Commodity Funds’ most famous ETFs, the United States Natural Gas Fund(UNG), grew so large that it nearly bumped against the limits set by the CFTC.

In an effort to avoid regulatory violations, the fund changed the types of securities it could own. While the fund had originally tracked the performance of natural gas using futures contracts, it began to use swaps as well.

In 2009, PowerShares’ line of Deutsche Bank commodity ETFs felt strain at the hands of the CFTC as well. However, aside from being forced to restructure the underlying portfolios of a pair of funds, last year’s CFTC onslaught lead to the shuttering of one of the firm’s futures-backed, leveraged ETNs.

PowerShares’ broad agriculture ETF, the PowerShares DB Agriculture Fund(DBA) and the PowerShares DB Commodity Index Tracking Fund(DBC) underwent facelifts  late last year after, like UNG, they treaded dangerously close to breaching position limits set up by the CFTC.

Prior to the change, DBA tracked an equally weighted basket of futures contracts which exposed investors to corn, wheat, soybeans and sugar. After the change, DBA’s exposure to these four crops was reduced and investors gained exposure to additional commodities including coffee, cattle, and hogs.

DBC had previously tracked the futures contracts of six different commodities which included heating oil, gold and corn. In order to comply with the CFTC, however, the fund added exposure to six additional commodities. New additions included zinc, copper, soybeans and sugar.

Pressure from regulators also led PowerShares to shutter its leveraged U.S. oil ETN, the PowerShares DB Crude Oil Double Long Exchange Traded Note (DXO).

Given the wreckage left behind after last year’s CFTC intervention, it is no wonder that these two fund providers are apprehensive towards the regulatory arm today. Given the threat of increased oversight from Washington, investors should exhibit caution when attempting to play commodities using futures-backed products.

For now, investors can avoid the threat of regulatory headaches by sticking to the various physically-backed precious metals ETFs, or resign themselves to indirect commodities exposure via the growing number of equity-backed ETF products.

Disclaimer

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

Market Vectors Gold Miners ETF (GDX) 3.1%

Gold ETFs of various forms have been on a winning streak throughout this week. While uncertainty regarding Europe and Goldman Sachs (GS) sent investors piling into physical gold yesterday, today the miners are coming out on top.

Aiding GDX’s rise on Wednesday was Barrick Gold’s (ABX) earnings report, which beat analyst expectations.

Market Vectors Vietnam ETF (VNM) 1.8%

VNM has managed to erase a good portion of the losses it accrued throughout this week.

Vietnam’s relative disconnect from the rest of the global economy has and should continue to make VNM an interesting fund to watch as China, the U.S. and the E.U. work through their respective economic hurdles.

Losers

iPath Dow Jones UBS Sugar Total Return Subindex ETN (SGG) -2.9%

Sugar prices continued to take a hit heading into Wednesday, leading SGG to some of biggest losses among all ETFs.

Wednesday’s dip marks the seventh consecutive day of losses for this commodity.

iShares MSCI Spain Index Fund (EWP) -2.5%

Europe continued to get battered today in light of Greece’s ongoing debt troubles.

Leading the pack was EWP, which is designed to track Spain’s markets. The past two days’ losses have helped the fund carve out brand new lows for 2010.

Stay away from Spain and Europe until clearer skies prevail.

ETFS Physical Palladium Shares (PALL) -1.6%

After Tuesday’s tumble, investors still appear cautious of jumping back into the markets. Fears are causing investors to shy away from volatile metals like palladium, driving PALL lower.

Investors looking for a more conservative play on the platinum group of metals may want to take a look at the ETFS Physical Platinum Shares (PPLT), but those who can stand the volatility should see nice gains when the market reverses.

Disclaimer

The beginning of the end of the slide in natural gas prices is upon us and investors should position themselves in ETFs such as First Trust ISE-Revere Natural Gas(FCG) ahead of the turn.

Natural gas suffered a double whammy in the past two years. First, the global economic crisis crushed demand from all sources: residential, commercial, industrial and electric power.

Then, with consumption low, output increased as new discoveries and production were brought to market. The result was a price that slid and stagnated even as the U.S. and global economy recovered, pushing the price of oil up about 100% from crisis lows.

A major source of falling demand came from industrial and electric power. As this chart from the Energy Information Administration (EIA) shows, these two sources of demand were shrinking from mid-late 2007 until the end of 2009.

These two sources make up almost two-thirds of total demand. Residential and consumer demand, a combined one-third of demand, recovered earlier, and the result was higher total consumption in January than was seen in the previous two years.

Demand is just one-half of the market though. Supply has been robust enough that the increase in demand hasn’t affected natural gas prices yet. That may change, however, as natural gas producers shutter wells and shift production.

In April, rig counts declined for the first time in 16 weeks. This process is part of the bottoming process and natural gas prices may continue to slide until enough production is taken off the market.

Natural gas drillers are also shifting assets into oil drilling and exploration. Petrohawk’s(HK) CEO said the firm would do more oil drilling. SandRidge(SD) bid for Arena Resources(ARD) to grow its oil reserves, and even Chesapeake Energy(CHK), the stock most investors think of when they hear natural gas, is talking about oil.

In addition to the voluntary production cuts from the industry, regulators may tighten the areas open to drillers. New York toughened watershed protections last week, closing off some areas of the Marcellus shale formation that stretches into much of the state. The EPA is also looking into the threat of water pollution and the trend in Washington at the moment would seem to favor some tightening of regulations.

All these factors point to a bottom in natural gas prices, but it doesn’t mean the bottom is in. Bottoming is a process and the forces that will cause the next sustained rally in natural gas prices take time to build up. This gives investors the luxury of time in positioning themselves for the eventual upturn.

For ETF investors looking to play a bottom in natural gas, U.S. Natural Gas(UNG) is not the best choice. Fundamentally, natural gas prices may have further to fall in the near term and in the long run, I expect natural gas stocks will beat the fuel itself.

On top of that, regulatory issues are back in the spotlight as Washington turns to financial reform, and these have caused problems for UNG before.

The better ETF for this move is First Trust ISE-Revere Natural Gas, with the J.P. Morgan Alerian MLP Index ETN(AMJ) as a solid choice for conservative and income oriented investors. For more information on these funds, see my Ultimate Guide to Natural Gas.

Investors also have a much more volatile play in the form of the Jeffries TR/J CRB Wildcatters Exploration & Production Equity ETF(WCAT), which owns small and mid-cap oil and natural gas explorers and producers.

The fund has a 0.65% expense ratio and extremely low volume that has averaged 1,500 shares per day over the past three months, in addition to having only $4 million in assets.

I warned investors of the risks in this fund before in an article, but I expect this fund to outperform. Recently, top 10 holding Mariner Energy(ME) jumped almost 50% when Apache(APA) offered to buy the firm, and this has helped WCAT beat FCG thus far in 2010, 16.5% to 10.7%

Welcome to Don Dion’s Daily ETF Winners and Losers. Be sure to stop by each day to get a feel of who’s winning and who’s losing when it comes to ETFs.

Winners

iPath S&P 500 VIX Short-Term Futures ETN (VXX) +8.7%
Uncertainty surrounding Europe’s plans to bail out Greece make for a shaky day of trading. In response to the jittery markets, the fear-tracking VIX is scoring some nice gains.

VXX has been on a consistent downward slide throughout 2010. However, this has not stopped other firms from mulling the possibility of launching their own products. This week, Jefferies announced its plan to launch the first VIX-tracking ETF, the Jefferies S&P 500 VIX Short-Term Futures ETF, which will trade under the symbol, VIXX.

I would advise investors to steer clear of any fund designed to track this index. These funds have further to fall as the world’s markets continue on the road to recovery.

SPDR Gold Shares (GLD) +1.1%

A choppy trading session and a Greece rating downgrade is leading markets lower, causing investors to shy away from equities and currencies and instead seek out the security of gold.

This week looks strong for gold miners as well, with Newmont Mining releasing a strong earnings report on Tuesday. Looking to the remainder of the week, Goldcorp (GG) and Barrick Gold (ABX) are scheduled to report their own earnings on Wednesday.

Losers

iShares MSCI Spain Index Fund (EWP) -5.5%

The ongoing Greece situation is causing investors to flee other debt-ridden European nations.

Until the Euro-bloc can come to a consensus on how Greece’s debt crisis will be handled, investors should expect single nation European funds like EWP to suffer.

Market Vectors Steel ETF (SLX) -4.6%

Although steel saw some nice gains at this week’s open, on Tuesday, the fund took a hit.

Aiding to the fund’s fall is United States Steel (X). On Tuesday, the company reported its quarterly earnings. Despite seeing its smallest losses in five quarters, investors still pushed the company’s shares down over 5% in midday trading.

Iron ore producers, which account for nearly a quarter of the fund’s total index, were also suffering today with Rio Tinto (RTP) and Vale down 5% and 4%, respectively.

iPath Dow Jones UBS Sugar Total Return Subindex ETN (SGG) -2.9%

Last week sugar and SGG fell on fears that India would cease being an importer. On Tuesday, the dip could be attributed to rains in Brazil, which are expected to aid the nation’s yields.

With a combination of decreased demand and increased supply brewing the perfect storm for this battered sweetener, I would advise investors to continue to steer clear for the time being.

Disclaimer

Although the public is focused on Washington’s assault on Goldman Sachs(GS) and the Congressional debate over financial reform, these are not the only situations where the regulatory hammer has been brandished.

Prior to these headline grabbing events, the SEC began to actively examine the use of derivatives in leveraged and active ETFs.

As the ETF industry has grown and evolved over the years, products have become more and more advanced. Today, while the vast majority of funds like the SPDR S&P 500 ETF(SPY) and the PowerShares QQQ(QQQQ) passively track a broad index, investors can target increasingly complex slices of the market or magnify their returns using leveraged and alternative products.

Investors can also now choose from the growing collection of actively managed ETFs which promise stronger returns than a traditional index ETF.

While these new classes of exchange traded funds make promises of market beating returns, their use of derivatives make them increasingly risky. The dangers of holding these products have drawn the attention of the SEC which, in an effort to better grasp the use of derivatives in these products, placed a freeze on any new ETF which employs these instruments to achieve their goals.

The companies most affected by this freeze include Direxion, ProShares and Rydex: the three firms leading the leveraged ETF revolution.

While it may not have much to do directly with this regulatory development, since the SEC started its investigation, two of these providers have announced dramatic changes to their current and forecast leveraged ETF line-ups.

On Monday, investors learned that Rydex is planning to close nearly every leveraged exchange product in its lineup. Though well known for its leveraged mutual funds like the Rydex Dow 2X Strategy Fund(RYCVX), traditional ETFs like the Rydex S&P Equal Weight Index ETF(RSP), and CurrencyShares ETFs like the CurrencyShares Euro Trust(FXE), Rydex also commands a suite of fourteen 2X leveraged products that allow investors to take bullish and bearish bets a number of indexes and sectors.

For 12 of these products, May 21 will mark their final day of trading.

Products scheduled for execution include the Rydex 2X Russell 2000(RRY), the Rydex Inverse 2X S&P Midcap 400(RMS) and the Rydex 2X S&P Select Sector Health Care(REC). While these funds have been available for over two years, they have failed to gain much of a following.

The two funds that will survive the onslaught are the Rydex 2X S&P 500 ETF(RSU) and the Rydex Inverse 2X S&P 500 ETF(RSW), which each have about 100k in average volume and about $190 million in combined assets. The twelve closing funds have $130 million in assets.

The Rydex news follows Direxion’s unveiled plans for a collection of 36 new ETFs . Similar to Direxion’s current line-up, the vast majority of these funds will offer triple the performance, up or down, of market slices such as gold, Brazil and water. However, two additional products will allow investors to take unleveraged bullish bets on the performance of the automotive and airline industry.

Although uncharacteristic, these two funds may end up being blockbuster products from the firm. The Direxion Auto Shares and the Direxion Airline Shares will not only be immune from the regulatory assault but also, given the performance of these two specific market slices throughout the economic recovery, the popularity of these funds could set the stage for even more unleveraged products from Direxion.

As the ETF industry has expanded and become more commonplace among investors, it has gone through a number of transformations. While many of these developments have been beneficial for retail investors, others have made this industry a riskier place.

The SEC’s investigation appears to be ushering the next step in this industry’s evolutionary process. During this time, investors will want to stay on top of this development or risk being left behind.