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Leveraged Energy ETFs to Profit From Rising Oil Price
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The energy sector is the top performer this year courtesy of higher oil prices. Oil price topped $90 per barrel for the first time since 2014 on supply disruptions and unprecedented demand.
As such, many investors have turned bullish on the energy sector and are seeking to tap this opportunity. For them, a leveraged play on energy ETFs could be an excellent idea as these could see huge gains in a very short time frame when compared to the simple products. These are ProShares Ultra Oil & Gas ETF (DIG - Free Report) , Direxion Daily Energy Bull 2X Shares (ERX - Free Report) , Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
Solid Demand/Supply Trends
The supply side of the energy market remains tight as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are sticking to their planned output increase of 400,000 barrels per day in February rather than boosting it further. The geopolitical tensions between Russia and Ukraine and in the Middle East as well as frigid weather heightened concerns over tight energy supply amid increasing demand.
On the other hand, ebbing concerns over the Omicron variant and rising jet fuel consumption are bolstering demand. Increasing COVID-19 vaccination rates, easing pandemic-related restrictions, and a growing economy should continue to support the demand for energy. The combination of factors is expected to continue pushing oil prices and thus the energy sector higher. In fact, a slew of Wall Street banks and oil executives are forecasting a return of oil to $100 per barrel.
Added to the strong momentum is the state of backwardation in the oil futures market, where later-dated contracts are cheaper than near-term contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is likely to persist, at least in the near term, acting as the biggest catalyst for the commodity (read: Oil in Backwardation: 7 ETFs That Topped the Chart Last Week).
Below, we have highlighted the leveraged ETFs in detail:
ProShares Ultra Oil & Gas ETF seeks to deliver twice (2X or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. The index measures the performance of the energy companies, including oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies.
ProShares Ultra Oil & Gas ETF has been able to manage $227.4 million in its asset base and trades in a good volume of about 69,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull 2X Shares (ERX - Free Report)
Direxion Daily Energy Bull 2X Shares creates two times leveraged position in the Energy Select Sector Index, while charging 95 bps in fees a year.
Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the energy leveraged space with AUM of $669.7 million and an average trading volume of around 4.7 million shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report)
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares has accumulated $878.4 million in its asset base and the average daily volume is solid at around 1.7 million shares. The ETF charges 95 bps in annual fees (read: Leveraged ETF: How to Use & What's Hot Now?).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.1 billion in its asset base while trading in an average daily volume of 292,000 shares. Expense ratio comes in at 0.95%.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report)
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times leveraged performance of the MicroSectors Oil & Gas Exploration & Production Index. The index provides exposure to the large-capitalization companies that are domiciled and listed in the United States and that are active in the exploration and production of oil and gas.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN has amassed $11.2 million in its asset base and trades in a lower average volume of 31,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the energy sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.
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Leveraged Energy ETFs to Profit From Rising Oil Price
The energy sector is the top performer this year courtesy of higher oil prices. Oil price topped $90 per barrel for the first time since 2014 on supply disruptions and unprecedented demand.
As such, many investors have turned bullish on the energy sector and are seeking to tap this opportunity. For them, a leveraged play on energy ETFs could be an excellent idea as these could see huge gains in a very short time frame when compared to the simple products. These are ProShares Ultra Oil & Gas ETF (DIG - Free Report) , Direxion Daily Energy Bull 2X Shares (ERX - Free Report) , Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report) , MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report) and MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report) .
Solid Demand/Supply Trends
The supply side of the energy market remains tight as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are sticking to their planned output increase of 400,000 barrels per day in February rather than boosting it further. The geopolitical tensions between Russia and Ukraine and in the Middle East as well as frigid weather heightened concerns over tight energy supply amid increasing demand.
On the other hand, ebbing concerns over the Omicron variant and rising jet fuel consumption are bolstering demand. Increasing COVID-19 vaccination rates, easing pandemic-related restrictions, and a growing economy should continue to support the demand for energy. The combination of factors is expected to continue pushing oil prices and thus the energy sector higher. In fact, a slew of Wall Street banks and oil executives are forecasting a return of oil to $100 per barrel.
Added to the strong momentum is the state of backwardation in the oil futures market, where later-dated contracts are cheaper than near-term contracts. This signals that the oil market is tightening and demand is robust, paving the way for an oil rally. This trend is likely to persist, at least in the near term, acting as the biggest catalyst for the commodity (read: Oil in Backwardation: 7 ETFs That Topped the Chart Last Week).
Below, we have highlighted the leveraged ETFs in detail:
ProShares Ultra Oil & Gas ETF (DIG - Free Report)
ProShares Ultra Oil & Gas ETF seeks to deliver twice (2X or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. The index measures the performance of the energy companies, including oil drilling equipment and services, coal, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies.
ProShares Ultra Oil & Gas ETF has been able to manage $227.4 million in its asset base and trades in a good volume of about 69,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull 2X Shares (ERX - Free Report)
Direxion Daily Energy Bull 2X Shares creates two times leveraged position in the Energy Select Sector Index, while charging 95 bps in fees a year.
Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the energy leveraged space with AUM of $669.7 million and an average trading volume of around 4.7 million shares.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares (GUSH - Free Report)
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares offers two times exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index.
Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Shares has accumulated $878.4 million in its asset base and the average daily volume is solid at around 1.7 million shares. The ETF charges 95 bps in annual fees (read: Leveraged ETF: How to Use & What's Hot Now?).
MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU - Free Report)
MicroSectors U.S. Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors U.S. Big Oil Index, which is equal-dollar weighted and provides exposure to the 10 largest U.S. energy and oil companies.
MicroSectors U.S. Big Oil Index 3X Leveraged ETN has been able to manage $1.1 billion in its asset base while trading in an average daily volume of 292,000 shares. Expense ratio comes in at 0.95%.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN (OILU - Free Report)
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times leveraged performance of the MicroSectors Oil & Gas Exploration & Production Index. The index provides exposure to the large-capitalization companies that are domiciled and listed in the United States and that are active in the exploration and production of oil and gas.
MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN has amassed $11.2 million in its asset base and trades in a lower average volume of 31,000 million shares. It charges investors 95 bps in annual fees and expenses.
Bottom Line
As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Equity ETFs here).
Still, for ETF investors who are bullish on the energy sector for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance and a belief that the trend is the friend in this corner of the investing world.