Once this year’s top-performing sector in the S&P 500, energy continued cementing its status as the lone group in the benchmark U.S. index to reside in the red for the year when energy stocks and equity-based exchange traded funds plunged during Friday’s holiday-shortened U.S. session.
Already imperiled, oil stocks and the ETFs that hold those companies tumbled Friday after the Organization of Petroleum Exporting Countries (OPEC) opted to keep its daily output unchanged at 30 million barrels. The 12-member cartel made the decision at its Vienna meeting Thursday and the headlines sent oil futures tumbling. West Texas Intermediate futures slid to the lowest levels in five years. [Expect a Bad Day for Oil ETFs]
OPEC’s decision to not cut production and the ensuing decline for oil futures predictably plagued an array of equity-based energy ETFs on Friday. Of the day’s eight worst-performing non-leveraged ETFs, seven were energy sector funds. Led by an almost 14% drop for the First Trust ISE-Revere Natural Gas Index Fund (NYSEArca: FCG) the average Friday decline for those seven energy sector ETFs was 11.5%.
Yet despite the fact that the Energy Select Sector SPDR (NYSEArca: XLE) and the Vanguard Energy ETF (NYSEArca: VDE) are each down more than 7% over the past month and that the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEArca: XOP) has plunged 35.4% over the past 90 days, traders have not been rushing to inverse, leveraged energy sector ETFs.
Since the start of November, the UltraShort Oil & Gas ProShares (NYSEArca: DUG) has surged nearly 15%. DUG, the double-leveraged bearish answer to the iShares U.S. Energy ETF (NYSEArca: IYE), has done a nearly perfect job of delivering twice the inverse performance of IYE. To be precise, DUG is up 14.76% this month while IYE is down 7.6%. [Bearish ETFs for Falling Oil]
The Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY), the triple-leveraged answer to XLE, is up 20.6% this month. However, those stout performances by DUG and ERY have not been attracting investors, a similar phenomenon to what has been seen with inverse futures-based oil ETFs. [Bottom Fishing With Oil ETFs]
As of Nov. 27, DUG had lost more than $6 million in assets this month while ERY had seen only modest inflows. Again, there are parallels between equity-based oil ETFs and their futures-based counterparts.
Money has been pouring into the United States Oil Fund (NYSEArca: USO), but much of the cash that has taken USO north of $1 billion in assets under management is believed to be from traders shorting the ETF.
Interestingly, XLE, the largest energy sector ETF, has added $1.1 billion in new assets this month, which could be a sign that some traders are shorting that fund rather than establishing long positions in inverse equivalents. XOP, often one of the most heavily shorted ETFs of any type, has added $41 million in new assets this month.
UltraShort Oil & Gas ProShares