Bookmark and Share

Oil Short ETF – Complete Analysis & List of Major Players

0 Comment

About Short Oil ETFs -

Investing in Oil ETF is an easy way to invest in oil without hoarding oil barrels in one’s warehouse. Oil companies are getting rich by the day, because of huge demand of oil globally. In the recent years, the ETFs have expanded magnificently. There are a lot of options available to the investors to suit their needs – ranging from plain vanilla stock and bond indexes to hyper-targeted regional and sector funds. Just like Short/ Inverse ETFs, there are 3x leveraged Oil ETFs – designed to seek daily investment results, before fees and expenses, of 300% of the performance of the benchmark index that they track. One needs to be extra cautious, when investing in these leveraged oil ETFs because they include unique risks, characteristics and fees. Any decision should be made only after reading each fund’s prospectus & consulting an investment professional. Leveraged funds are intended for short-term or day-trading and the long-term performance of these funds may differ from the long-term performance of the underlying assets or index. ETFs are one of the more benefit-rich investment vehicles available in the marketplace today. Some of these benefits include tax efficiency, lower ownership costs, liquidity and convenience. ETFs are one of the fastest growing investment products in the worldwide financial marketplace today.

Inverse ETFs, also known as short ETFs, have become extremely popular for a wide variety of objectives, including as hedging tools and vehicles for speculating on declines in value. Short or inverse ETFs generally seek to deliver results that correspond to the inverse, of the movement in a specified index over a given period of time. Inverse ETFs strive to deliver the target multiple generally on a single day. However, it is not necessary that when held for longer periods of time, inverse ETFs will always deliver returns that correspond to the reverse of the underlying index over that period of time.

Types of Short ETFs

Monthly Short ETF -

There are some inverse ETFs that seek to achieve their results over a period of time that is longer than a single trading session. Specifically, PowerShares and Deutsche Bank offer a number of ETNs that seek to deliver results equal to -100% of indexes comprised of commodity futures over the course of a month. The impact of day-to-day volatility will not affect these ETFs much.

Daily Short ETF – These ETFs strive to deliver the target multiple over a period of time which is generally of a single day. They deliver results that correspond to the inverse, of the movement in a specified index over a period of a day.

Short ETFs For Other Asset Classes -
Stocks are not the only type of asset covered by short ETFs. There are some ETFs investing in a number of  bonds and commodities as well.

  • Long-Term Treasuries: ProShares Short 20 Year Treasury (TBF), Direxion Daily 20 Year Treasury Bear 1x Shares (TYBS)
  • High Yield Bonds: ProShares Short High Yield (SJB)
  • Total Bond Market: Direxion Daily Total Bond Market Bear 1x Shares (SAGG)
  • Broad Commodities: PowerShares DB Commodity Short ETN (DDP)
  • Gold: PowerShares DB Gold Short ETN (DGZ)
  • Crude Oil: United States Short Oil Fund (DNO) and PowerShares DB Crude Oil Short ETN (SZO)
  • Base Metals: PowerShares DB Base Metals Short ETN (BOS)
  • Agriculture: PowerShares DB Agriculture Short ETN (ADZ)

Some of the key players of Short Oil ETFs are:

ProShares - ProShares, part of ProFunds Group, the world’s largest manager of leveraged and inverse funds, have taken exchange traded funds to the next level. Their portfolio manages 132 ETFs, which includes the world’s largest lineup of geared ETFs and provide exposure to U.S. and foreign equities, fixed-income, inflation, commodity, currency and volatility benchmarks.UltraProShares ETFs seek returns that are either 3x, 2x, -1x, -2x or -3x the return of an index or other benchmark for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely to differ in amount and possibly direction from the target return for the same period.
For example, Short Oil & Gas seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily performance of the Dow Jones U.S. Oil & Gas IndexSM. This Short ProShares ETF seeks a return that is -1x the return of an index or other benchmark  for a single day, as measured from one NAV calculation to the next. It has 69 such funds in the short Oil ETF category: 18 of them are (-1x), 45 are (-2x) & 6 of them are (-3x).
Major ones are listed below:
  • DDG – Short Oil & Gas ProShares ETF (-1x), Month-End NAV Total Returns as of 30th April, 2012 was (-4.41%) YTD
  • DUG – UltraShort Oil & Gas ProShares ETF (-2x), Month-End NAV Total Returns as of 30th April, 2012 was (-9.16%) YTD
  • SCO – UltraShort DJ  UBS Crude Oil ProShares ETF (-2x), Month-End NAV Total Returns as of 30th April, 2012 was (-12.15%) YTD.
 PowerShares  - leading the ETF Revolution through its more than 120 domestic and international index-based ETFs and actively managed ETFs, with franchise assets of over $60 billion as of March 31, 2011. PowerShares ETFs seek to outperform traditional benchmark indices, while providing investors access to an innovative array of focused investment opportunities. PowerShares ETFs trade on all major U.S. stock exchanges, as well as many other prominent exchanges throughout Canada and Europe.
All of Powershares DB Crude Oil ETNs are based on a total return version of the Deutsche Bank Liquid Commodity Index-Oil which is designed to reflect the performance of certain crude oil futures contracts plus the returns from investing in 3 month United States Treasury bills. The Long ETN is based on the Optimum Yield version of the Index and the Short and Double Short ETNs are based on the standard version of the Index. The Optimum version attempts to minimize the negative effects of contango and maximize the positive effects of backwardation by applying flexible roll rules to pick a new futures contract when a contract expires. The standard version, uses static roll rules that dictate that an expiring futures contract must be replaced with a contract having a pre-defined expiration date.
Some of its products are:
  • DTO – PowerShares DB Crude Oil Double Short ETN
  • SZO – PowerShares DB Crude Oil Short ETN

Direxion Shares – is a pioneer in providing sophisticated investment solutions and helping investors optimize their portfolio strategies, through proper management of portfolio risk. Their leveraged ETFs are powerful tools built to help magnify customer perspective, seek opportunities on both sides of the trade, and trade through rapidly changing markets.

Their inverse ETFs are classified for investments into:

Domestic Equity – investing into daily large cap, mid cap & small cap bull & bear markets.

Sector Equity- investing into agriculture, energy, finance, gold, healthcare, natural gas, real estate, retail, semiconductor & technology sectors.

International Equity- are divided for investments in international markets like Developed & Emerging markets, China, India, Latin America & Russia.

Fixed Income – comes with a 7-10 & 20 years investment plans.

United States Short Oil Fund  – The General Partner of the company is United States Commodity Funds LLC (USCF) & Brown Brothers Harriman & Co. are its custodian & administrator.

US Short Oil Fund (DNO) – is an exchange-traded security that is designed to inversely reflect the movements of light, sweet crude oil. DNO issues units, that are traded on the NYSE Arca. The investment objective is for the daily changes (in %) in NAV to inversely reflect the daily changes (in %) of the spot price of light, sweet crude oil; as measured by the changes in the price of the futures contract on crude oil as traded on the NYMEX. However, there is a risk that the daily changes in the price of DNO’s units on the NYSE will not closely track the inverse of the daily changes in the spot price of crude oil. This could happen if the price of units traded on the NYSE does not correlate closely with DNO’s NAV; the changes in DNO’s NAV do not correlate closely with the inverse of the changes in the price of the Benchmark Futures Contract; or the changes in the inverse of the price of the Benchmark Futures Contract do not closely correlate with the changes in the cash or spot price of crude oil.

 

More on this topic (What's this?)
Simple Reason Why Oil Will Bounce Here: Duh!
The Best Way to Play Crude Oil Right Now
Read more on Oil at Wikinvest
PG

Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in or call me on +913340606492.

You might also like:

 

No Responses so far | Have Your Say!

Leave a Reply