In some cases, ignorance may be bliss, but not when it comes inverse, leveraged oil exchange traded products. With Brent and West Texas intermediate futures residing at their lowest levels since early in the second quarter of 2009, it would be logical to assume that bearish oil ETFs and ETNs have been the toast of the town.
In reality, that has not been the case. Since the start of December, the United States Oil Fund (NYSEArca: USO) has plunged almost 32% so it is not surprising that over the past month the top three leveraged ETFs are all bearish oil plays.
In just one month, a $10,000 investment in the VelocityShares Daily 3x Inverse Crude ETN (NYSEArca: DWTI) has morphed into almost $18,400. Over the 90 days leading up to Wednesday, DWTI, which attempts to deliver three times the daily inverse performance of the S&P GSCI Crude Oil Index, has risen more than fivefold, but since the start of December, the ETN has seen inflows of just $46.8 million. [Bearish Oil ETF Ideas]
By comparison, USO has hauled $1.2 billion of new money. The caveat there is that much of the new capital being put to work in USO is not coming courtesy of oil bulls. Rather, the ETF has become a favored stop for short sellers, but when shares are created to loan to those bearish traders, USO’s shares outstanding and assets under management tallies rise. [Watch for Contango With Oil ETFs]
DWTI is not the only soaring inverse oil ETF that is getting the cold shoulder from traders. In fact, some of DWTI’s rivals have been hit with redemptions even as oil prices continue sagging.
For example, the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO) has added just $2.1 million in new assets since the start of December, but SCO has surged 50% over the past month. The PowerShares DB Crude Oil Double Short ETN (NYSEArca: DTO) presents an even more vexing scenario.
Over the past month, DTO is the third-best leveraged ETF behind DWTI and SCO with a gain of almost 41%, but since the start of December, DTO has bled $21.1 million of assets. DTO takes the -2x or negative 200% performance of oil futures contracts. [Best Leveraged ETFs of 2014]
A similar situation is found with equity-based ETFs. The UltraShort Oil & Gas ProShares (NYSEArca: DUG), which seeks to deliver twice the daily inverse performance of the Dow Jones U.S. Oil & GasIndex, the underlying benchmark for the iShares U.S. Energy ETF (NYSEArca: IYE), is up 13.4% since the start of December but has lost almost $2 million over that period.
ProShares UltraShort Oil & Gas