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Tap Oil with These Leveraged Energy ETFs

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After registering the worst month in a decade, oil price rebounded strongly gaining as much as 6% in yesterday’s trading session following the G20 summit, which has been highly positive for the commodity. Notably, oil notched its best day in more than five months.

This is especially true as trade concerns alleviated for some time with the U.S.-China trade truce, in which Trump agreed to halt any new tariff for 90-days while China agreed to boost purchases of U.S. agricultural goods to reduce trade imbalance between the two countries. This has brought relief to global growth concerns and the resultant waning oil demand (read: Trump-Jingping Truce to Boost These ETFs).

Also at the meeting, Russia and Saudi Arabia agreed to extend their agreement to curb output to help boost oil price. This has raised hopes for fresh cuts in oil supply when OPEC meets in Vienna on Dec 6. Further, the surprise move by the Canadian province of Alberta to force producers to cut output by 8.7%, or 325,000 barrels per day, starting next month added to the strength.

The combination of all these factors has increased the appeal for oil at least in the near term, fueling a rally in the energy space.

How to Play?

Amid the renewed optimism, many investors have turned bullish on the energy sector and are seeking to tap this opportunity. 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 several leveraged ETFs and the key differences between them:

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 $92.4 million in its asset base and trades in a good volume of about 88,000 shares per day on average. DIG charges 95 bps in fees per year and gained 4.7% in yesterday’s trading session.

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 $365.4 million and average trading volume of around 2.1 million shares. ERX has surged 6.9% in yesterday’s trading session (read: Buy These Energy ETFs on Strong Earnings Growth).

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 $156.4 million in its asset base and average daily volume is solid at around 1.5 million shares. Expense ratio comes in at 0.95% and the ETF was up 9.8% on the day.

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 returns of the daily performance of the Bloomberg WTI Crude Oil Subindex, which consists of futures contracts on crude oil. It has $347.6 million in AUM and trades in heavy volume of about 2.7 million shares a day on average. Expense ratio comes in at 0.95%.

VelocityShares 3x Long Crude Oil ETN

This targets the energy commodity market through WTI crude oil futures contracts. It seeks to deliver thrice the returns of the S&P GSCI Crude Oil Index Excess Return and has amassed $310.9 million in its asset base. The ETN trades in heavy volumes of around 3.6 million shares a day, though it charges a higher fee of 1.50% per year.

ProShares UltraPro 3x Crude Oil ETF

This ETF offers three times exposure to the daily performance of the Bloomberg WTI Crude Oil Subindex. The fund has amassed $62.8 million in its asset base and trades in solid average volume of 355,000 shares. It charges investors 95 bps in annual fees and expenses (read: Oil ETFs: What You Need to Know).

UBS ETRACS ProShares Daily 3x Long Crude ETN

With AUM of $7.5 million, WTIU also delivers three times exposure to the daily performance of the Bloomberg WTI Crude Oil Subindex ER. It has an expense ratio of 1.45% and trades in average daily volume of $36,000 shares.

United States 3x Oil Fund

This fund provided three times the daily price movements of WTI oil, charging investors 1.00% in expense ratio. It has accumulated $9.9 million in its asset base and trades in a paltry volume of 17,000 shares a day.

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 or the commodity oil 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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