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Saudi, Russia Boost Oil Price: Bet on Leveraged ETFs
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Oil prices, which were under immense pressure from higher U.S. output and increased inventories, jumped more than 3% at the time of writing after the world's two top oil producers agreed to extend their production cuts for nine more months.
Saudi Arabia and Russia, which together control a fifth of global supplies, are at the forefront to extend the Organization of the Petroleum Exporting Countries (OPEC) output cut deal from the first half of 2017 to the end of the first quarter of 2018 to rein in the supply glut and stabilize the market. According to them, extending the curb at already agreed-upon volumes would bring global inventories to the five-year average. As per the International Energy Agency (IEA), demand will significantly exceed production if OPEC and its partners extend their cuts into the second half of the year.
OPEC, which accounts for one-third of the global output, Russia and other producers originally agreed to curb production by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension (read: Output Cut to Be Extended? Leveraged Energy ETFs to Play).
The move will likely encourage other countries in the 14-member cartel and Russia to join the extended agreement at OPEC's meeting on May 25. Early in the month, Kuwait also gave its support to the extension of an OPEC agreement to cut crude oil production beyond June.
As a result, it instilled fresh optimism in the energy sector, leading to a rally in the stocks though rising crude stockpiles and increasing oil production in the U.S. will continue to weigh on the prices. Given this, many investors have turned bullish on the energy sector and are seeking to tap this opportunity.
How to Play?
For them, a leveraged play on energy or oil could be an excellent idea as these could see huge gains in a very short time frame when compared to the simple products. Below, we have highlighted five leveraged ETFs that could be excellent picks for investors seeking to make large profits from the energy sector or the rising commodity in a short span (see: all Leveraged Equity ETFs here):
This ETF seeks to deliver twice (2x or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. It has been able to manage $139 million in its asset base and trades in a good volume of about 132,000 shares per day on average. DIG charges 95 bps in fees per year.
This fund creates a triple (3x or 300%) leveraged long position in the Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space with AUM of $541.6 million and average trading volume of more than 2.2 million shares (read: 7 Leveraged ETFs on Tap for Big Gains).
Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH - Free Report)
This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $146.6 million in its asset base and average daily volume is solid at around 670,000 shares. Expense ratio comes in at 0.95%.
ProShares Ultra Oil & Gas Exploration & Production ETF
This product also tracks the S&P Oil & Gas Exploration & Production Select Industry Index, but offers twice the returns of the daily performance with the same expense ratio as that of GUSH. It has AUM of just $1.3 million and trades in a paltry volume of around 1,000 shares.
This fund provides a leveraged play to the crude oil segment of the commodities market. It seeks to deliver twice the return of the daily performance of the Bloomberg WTI Crude Oil Subindex, which consists of futures contracts on crude oil. It has $965.5 million in AUM and trades in heavy volume of more than 7.3 million shares a day on average. Expense ratio comes in at 0.95% (read: Can Oil ETFs Rebound on Possibility of More OPEC Cuts?).
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.
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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Saudi, Russia Boost Oil Price: Bet on Leveraged ETFs
Oil prices, which were under immense pressure from higher U.S. output and increased inventories, jumped more than 3% at the time of writing after the world's two top oil producers agreed to extend their production cuts for nine more months.
Saudi Arabia and Russia, which together control a fifth of global supplies, are at the forefront to extend the Organization of the Petroleum Exporting Countries (OPEC) output cut deal from the first half of 2017 to the end of the first quarter of 2018 to rein in the supply glut and stabilize the market. According to them, extending the curb at already agreed-upon volumes would bring global inventories to the five-year average. As per the International Energy Agency (IEA), demand will significantly exceed production if OPEC and its partners extend their cuts into the second half of the year.
OPEC, which accounts for one-third of the global output, Russia and other producers originally agreed to curb production by 1.8 million barrels per day in the first half of 2017, with a possible six-month extension (read: Output Cut to Be Extended? Leveraged Energy ETFs to Play).
The move will likely encourage other countries in the 14-member cartel and Russia to join the extended agreement at OPEC's meeting on May 25. Early in the month, Kuwait also gave its support to the extension of an OPEC agreement to cut crude oil production beyond June.
As a result, it instilled fresh optimism in the energy sector, leading to a rally in the stocks though rising crude stockpiles and increasing oil production in the U.S. will continue to weigh on the prices. Given this, many investors have turned bullish on the energy sector and are seeking to tap this opportunity.
How to Play?
For them, a leveraged play on energy or oil could be an excellent idea as these could see huge gains in a very short time frame when compared to the simple products. Below, we have highlighted five leveraged ETFs that could be excellent picks for investors seeking to make large profits from the energy sector or the rising commodity in a short span (see: all Leveraged Equity ETFs here):
ProShares Ultra Oil & Gas ETF (DIG - Free Report)
This ETF seeks to deliver twice (2x or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. It has been able to manage $139 million in its asset base and trades in a good volume of about 132,000 shares per day on average. DIG charges 95 bps in fees per year.
Direxion Daily Energy Bull & 3x Shares (ERX - Free Report)
This fund creates a triple (3x or 300%) leveraged long position in the Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space with AUM of $541.6 million and average trading volume of more than 2.2 million shares (read: 7 Leveraged ETFs on Tap for Big Gains).
Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH - Free Report)
This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It has accumulated $146.6 million in its asset base and average daily volume is solid at around 670,000 shares. Expense ratio comes in at 0.95%.
ProShares Ultra Oil & Gas Exploration & Production ETF
This product also tracks the S&P Oil & Gas Exploration & Production Select Industry Index, but offers twice the returns of the daily performance with the same expense ratio as that of GUSH. It has AUM of just $1.3 million and trades in a paltry volume of around 1,000 shares.
ProShares Ultra Bloomberg Crude Oil ETF (UCO - Free Report)
This fund provides a leveraged play to the crude oil segment of the commodities market. It seeks to deliver twice the return of the daily performance of the Bloomberg WTI Crude Oil Subindex, which consists of futures contracts on crude oil. It has $965.5 million in AUM and trades in heavy volume of more than 7.3 million shares a day on average. Expense ratio comes in at 0.95% (read: Can Oil ETFs Rebound on Possibility of More OPEC Cuts?).
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.
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.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>