Fed Fans Flame on Inverse Commodity ETFs

Many major commodity producers heavily invested capital to expand operations during the record boom years through the 2000s. However, their investments are beginning to bite them in the backside as the economy is oversupplied with commodities like oil, which has seen stockpiles distend to an all-time high of almost 3 billion barrels.

“Without fail, every single industrial commodity company allocated capital horrendously over the last 10 years,” Lapping added.

For targeted exposure to oil, investors utilized a number of inverse or bearish ETF options to hedge against weaker energy prices. For instance, the United States Short Oil (NYSEArca: DNO) tracks the opposite moves of the West Texas Intermediate crude oil futures, rose 24.2% year-to-date while the DB Crude Oil Short ETN (NYSEArca: SZO), which also tracks the simple inverse of oil, gained 27.2%. [Leveraged ETFs Are Popular Plays Among Swing Traders]

For the more aggressive traders, the ProShares UltraShort Bloomberg Crude Oil (NYSEArca: SCO) tries to reflect the two times inverse or -200% daily performance of WTI crude oil. The DB Crude Oil Double Short ETN (NYSEArca: DTO) also follows a -200% performance of oil. Lastly, the VelocityShares 3x Inverse Crude (NYSEArca: DWTI) takes the three times inverse or -300% performance of crude oil. [ETFs to Hedge Against a Grim Oil Outlook]

For more information on the commodities market, visit our commodity ETFs category.

Max Chen contributed to this article.