Defiance ETFs has introduced a new exchange-traded fund, the Defiance Daily Target 2X Short Rigetti Computing ETF (Ticker: RGTZ). The fund is designed for traders seeking to profit from short-term declines in the stock price of quantum computing firm Rigetti Computing, Inc. (Nasdaq: RGTI).
RGTZ aims to provide investment results that correspond to two times the inverse (-200%) of the daily performance of Rigetti's common stock. This product is structured for sophisticated investors who engage in active, daily portfolio management.
Key Takeaways
- New Product: Defiance ETFs launched the Defiance Daily Target 2X Short Rigetti Computing ETF (RGTZ).
- Investment Goal: The ETF seeks to deliver -200% of the daily price change of Rigetti Computing (RGTI) stock.
- Target Audience: Designed for knowledgeable traders for short-term, tactical positions, not for long-term investors.
- High Risk: The fund uses leverage, which magnifies losses and involves significant risks, including the potential loss of the entire investment.
Defiance Expands Single-Stock ETF Lineup
Defiance ETFs, a firm known for its thematic and leveraged investment products, has added RGTZ to its growing suite of single-stock ETFs. This fund allows traders to take a bearish, or short, position on Rigetti Computing without needing a traditional margin account to short-sell shares.
The fund's structure provides inverse exposure, meaning it is designed to increase in value when the price of RGTI stock decreases on a given day. Conversely, the ETF is expected to lose value if RGTI's stock price rises.
Understanding the RGTZ Investment Objective
The primary goal of RGTZ is to achieve a specific daily target. Before fees and expenses, the fund aims to produce a return that is -200% of the daily percentage change in RGTI's share price. For example, if RGTI stock falls by 5% on a single trading day, RGTZ is designed to rise by approximately 10%. If RGTI rises by 5%, RGTZ would be expected to fall by 10%.
It is critical for investors to understand that this objective is for a single trading day only. The fund rebalances its portfolio daily to maintain the target leverage, which leads to the effects of compounding over time.
What is Daily Rebalancing?
Leveraged and inverse ETFs reset their exposure each day. This process, known as daily rebalancing, ensures the fund starts each new trading session with its stated leverage target (e.g., -2X). While this helps achieve the daily goal, it can cause the fund's performance over multiple days to differ significantly from the underlying stock's cumulative performance over the same period.
Profile of the Underlying Company: Rigetti Computing
Rigetti Computing is a company operating in the field of quantum computing. It focuses on designing and manufacturing integrated quantum computing systems. The company builds its own superconducting quantum processors, which are the core components of its machines.
Rigetti provides access to its quantum systems through the cloud, a model known as Quantum Computing as a Service (QCaaS). This allows commercial clients and researchers to solve complex problems in areas like finance, artificial intelligence, and healthcare. It is important to note that an investment in RGTZ is a bet on the daily movement of RGTI's stock price, not a direct investment in Rigetti Computing itself.
Key Risks for Sophisticated Investors
Leveraged inverse ETFs like RGTZ are complex financial instruments that carry substantial risks. They are not suitable for all investors and are intended for those who understand the consequences of using leverage and are prepared to monitor their holdings frequently.
Compounding and Long-Term Performance Risk
Due to the daily rebalancing, the fund's performance for periods longer than one day is a result of compounded daily returns. This means its performance over weeks or months will likely not be -200% of RGTI's performance over that same period. In volatile markets, this compounding effect can lead to significant deviations from the expected long-term outcome, often resulting in losses even if the underlying stock moves in the anticipated direction over time.
Potential for Total Loss
The use of -2X leverage magnifies both gains and losses. A significant adverse daily move in the underlying stock could lead to a substantial or even total loss of an investor's principal within a single day. For instance, a 50% increase in RGTI's stock price in one day could theoretically wipe out the entire value of the RGTZ ETF.
Other Associated Risks
Investors should also be aware of several other risks inherent in this type of product:
- Single Issuer Risk: The fund's value is tied to a single company, Rigetti Computing. This makes it more volatile than a diversified fund, as any company-specific news or events can have a major impact.
- Derivatives Risk: To achieve its inverse exposure, the fund uses financial derivatives like swap agreements and options contracts. These instruments have their own risks, including counterparty risk, which is the risk that the other party in a transaction will not fulfill its obligations.
- Short Sale Exposure Risk: The fund's strategy mimics the risks of short selling. If Rigetti's stock performs well or its price appreciates significantly, RGTZ will suffer losses.
- Correlation and Tracking Risk: There is no guarantee the fund will perfectly achieve its stated daily objective due to factors like fees, expenses, and the performance of the derivatives used.
The Role of Leveraged ETFs in Trading
Defiance ETFs, founded in 2018, has been a key player in the development of single-stock leveraged ETFs. These products are designed as tactical tools for traders to express strong, short-term convictions about a specific stock's direction.
"The Fund is not intended to be used by, and is not appropriate for, investors who do not intend to actively monitor and manage their portfolios," states the official disclosure, highlighting the product's specialized nature.
Such funds are generally used to capitalize on anticipated events like earnings announcements, product launches, or other news that could cause a sharp, short-term price movement. They are not intended as buy-and-hold investments within a traditional, long-term portfolio.
Before considering an investment in RGTZ, individuals should carefully read the fund's prospectus to fully understand its objectives, strategies, and the extensive risks involved.
