However, potential traders should understand that these inverse and leveraged ETFs come with specific risks. Since these leveraged ETFs typically rebalance holdings on a daily basis, compounding issues can cause underperformance to their main objective during volatile market conditions and over long holding periods. [Do You Know How Your Leveraged ETFs Work?]
Looking ahead, oil investors should brace for more volatility, according to Exxon Mobil Ceo Rex Tillerson.
“There is the potential for there to be further pressure on the market for a period of time,” Tillerson said on CNBC. “I think people kind of need to settle in for what is likely to be a bit of a volatile time.”
Moreover, the futures market is currently trading in contango, which reflect a state of oversupply in oil where the price of later dated contracts are higher than the spot price. For futures-based ETFs, the widening contango could eat away at long-term returns as the fund rolls front contracts set to expire for the next month contract. [Widening Contango Could Cut Into Popular Oil ETF’s Returns]
For more information on the oil market, visit our oil category.
Max Chen contributed to this article.