Exchange traded fund traders who played the recent bout of wild market swings doubled down on risk and piled into leveraged products.
Traders have increasingly turned to exchange traded funds and notes that use leverage or amplify potential returns on oil, gold and natural gas, even as many bets have plunged after the commodities retreat, reports Dan Strumpf for the Wall Street Journal.
For instance, the VelocityShares 3x Long Crude ETN (NYSEArca: UWTI), which tracks three times or 300% the daily performance of WTI crude, has attracted over $1.2 billion in net inflows over the past six months, according to Lipper data. UWTI now sees more action than Apple (NasdaqGS: AAPL), Bank of America (NYSE: BAC) and other prominent stock names – UWTI volume jumped over 300 million shares Monday, and volume was at around 76.1 million mid-Friday after the ETN dipped 3.2%.
While the leveraged aspect of these geared products may produce greater returns, investors are exposed to greater risks as well. Many traders have also recently picked up the products as a way to play larger swings.
For example, UWTI jumped 8.4% last week. The Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT), which take the 3x or 300% daily performance of a group of large gold miners and junior miners, surged to intra-day highs of 18.5% and 12.8% last Friday, respectively.
VelocityShares said that institutional investors and money managers show growing demand for these types of strategies.