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Leveraged Inverse Oil ETNs In Focus As Bullish Oil Funds Lose Assets

In our fund flows recap today we mention evident position trimming in the two largest “Crude Oil” trackers in ETP land.

Specifically, USO (United States Oil Fund, Expense Ratio 0.45%, $2.9 billion in AUM) has lost more than $85 million in terms of redemption flows lately, with similar activity occurring in the Bull levered UCO (ProShares Ultra Bloomberg Crude Oil, Expense Ratio 0.95%, -$80 million, $933 million in AUM).

Crude Oil in early trading on Tuesday however is rallying hard, up more than 2%. We note that the very popular UWTI (VelocityShares 3X Long Crude Oil ETN) has been delisted since the last time we covered the fund in this piece (as has its Bear cousin DWTI), and UCO may benefit from this with portfolio managers and traders whom formerly used UWTI for the bull leverage looking for other alternatives.

In fact, in a competitive move, we see that UBS launched WTIU (ETRACS-ProShares Daily 3X Long Crude ETN, Expense Ratio 1.45%) as well as the Bear structured WTID (ETRACS-ProShares Daily 3X Inverse Crude ETN, Expense Ratio 1.85%) both back in January of this year, and the two funds have seen some daily turnover thus far although nothing near staggering volumes.

With the closing of UWTI and DWTI, VelocityShares however in December of last year responded with two new “3X” ETN offerings in the space, UWT (VelocityShares 3X Long Crude Oil ETN, Expense Ratio 1.50%, $147 million in AUM) and DWT (VelocityShares 3X Inverse Crude Oil ETN, Expense Ratio 1.50%, $52 million in AUM), neither of which are gigantic funds in terms of asset size yet, but they may take some time for seasoning in the marketplace.

Given the recent outflows in the two long Crude-based funds mentioned earlier, USO and UCO, which both happen to be the two largest funds in the space in terms of asset size, we may see an uptick in interest in the Bear levered WTID and DWT as well as in SCO (ProShares UltraShort Bloomberg Crude Oil 0.95%).

The VelocityShares 3x Inverse Crude Oil ETN (NYSE:DWT) was trading at $21.52 per share on Tuesday morning, down $1.13 (-4.99%). Year-to-date, DWT has declined -2.00%, versus a 5.58% rise in the benchmark S&P 500 index during the same period.

DWT currently has an ETF Daily News SMART Grade of NR (Not Rated), and is unranked among 30 ETFs in the Inverse Commodities ETFs category.


About the Author: Paul Weisbruch

paul-weisbruchPaul Weisbruch is the VP of ETF/Options Sales and Trading at Street One Financial. Prior to joining the team at Street One, Paul served as the Director of RIA and Institutional ETF Sales at RevenueShares ETFs from December 2007 until November of 2009. Before RevenueShares, Paul was employed by Susquehanna International Group from 2000 until 2007 serving in roles including OTC/NYSE Institutional Block Trading, Nasdaq/OTC Market Making, ETF/Derivatives Intelligence and Strategy, Algorithmic Trading, as well as acting as the PHLX Floor Specialist in the ETFs, SPY and DIA.Paul has been actively involved in the ETF space from both a product and trading standpoint since 2000. Additionally, Paul has well forged relationships with national RIAs, institutional pension fund managers and consultants, mutual fund and hedge fund managers, and also the ETF media. Co-authoring the “S1F ETF Daily” since 2009, the daily piece has become a must for many portfolio managers in the ETF space, with segments regularly appearing in the likes of Barron’s, WSJ, and for instance.

He holds his Series 4 (Registered Options Principal), 6, 7, 55 (Equity Trader), 63, and 65 licenses. He graduated from the University of Pittsburgh (B.S. – Economics), graduating magna cum laude, and has an MBA from Villanova University.

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