The 8% plunge in West Texas Intermediate futures Wednesday could be a reminder that despite an epic rally over the three previous trading days, oil and energy equities are far from erasing the memories of last year’s slides.
That has not stopped some traders from embracing bullish leveraged energy ETFs. On Wednesday, the Energy Select Sector SPDR (NYSEArca: XLE), the largest equity-based energy ETF, and the rival iShares U.S. Energy ETF (NYSEArca: IYE) each fell 1.7%. [Optimism for a Big Energy ETF]
Time will tell if another extended decline for oil equities chases investors from leveraged long energy ETFs such as the Direxion Daily Energy Bull 3X Shares (NYSEArca: ERX), but investors have done anything but run away from ERX this year. Rather, the opposite is true.
ERX, which attempts to deliver three times the daily performance of the S&P Energy Select Sector Index, XLE’s underlying index has hauled in nearly $172 million in new assets this year as of Feb. 3. That has helped the ETF’s shares outstanding count surge over 66%. Over the past month, investors have been rewarded for their faith in ERX with the ETF rising 7.3% compared to a 13.1% loss for its bearish equivalent, the Direxion Daily Energy Bear 3X Shares (NYSEArca: ERY). [Profiting from Oil’s Slide With ETFs]
Prior to Wednesday’s 4.9% drop, ERX was up 18.3% this month, a performance by just two other bullish leveraged Direxion ETFs, according to issuer data. For the five-day period ending Tuesday, ERX’s volume was about 15% above the average for the trailing 20-day period.
A similar scenario has been seen with ERX’s more lightly leveraged rival, the ProShares Ultra Oil & Gas Proshares (NYSEArca; DIG). DIG tries to deliver twice the daily performance of the Dow Jones U.S. Oil & Gas Index, the underlying index for IYE.
IYE is off 0.7% this year, dragging DIG to a 2.4% loss in the process, but that has not prevented DIG from adding in $31.2 million in new assets. XLE and IYE have added $727.9 million and $39.3 million, respectively, in new assets this year.
Direxion Daily Energy Bull 3X Shares