Leveraged energy ETFs to take advantage of rising oil prices

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Jhe energy sector is the best performer this year thanks to the rise in oil prices. The price of oil rose above $90 a barrel for the first time since 2014 due to supply disruptions and unprecedented demand.

As such, many investors have become bullish on the energy sector and are looking to exploit this opportunity. For them, a leveraged play on energy ETFs could be a great idea as these could see huge gains in a very short period of time compared to single products. These are ProShares Ultra Oil & Gas ETFs TO DIG, Direxion Daily Energy Bull 2X Shares ERX, Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Stocks JET, MicroSectors US Big Oil Index 3X leveraged ETN NRGU and Microsectors Oil and Gas Exploration and Production ETN effect 3X leverage OILU.

Strong supply and demand trends

The energy market supply remains tight as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, stick to their planned production increase of 400,000 barrels per day in February rather than increasing it further. Geopolitical tensions between Russia and Ukraine and in the Middle East as well as freezing weather have heightened concerns about limited energy supplies amid growing demand.

On the other hand, decreasing concerns about the Omicron variant and increasing jet fuel consumption are bolstering demand. Rising COVID-19 vaccination rates, easing pandemic-related restrictions and a growing economy should continue to support energy demand. The combination of factors should continue to push oil prices and thus the energy sector higher. In fact, a slew of Wall Street banks and oil executives are predicting oil to return to $100 a barrel.

Added to this strong momentum is the state of backwardation in the oil futures market, where future-dated contracts are cheaper than short-term contracts. This signals that the oil market is tightening and demand is robust, paving the way for a recovery in oil. This trend is likely to persist, at least in the short term, acting as the primary catalyst for the commodity (read: Oil pullback: 7 ETFs that topped the chart last week).

Below we have highlighted leveraged ETFs in detail:

ProShares Ultra Oil & Gas ETF (DIG)

ProShares Ultra Oil & Gas ETF seeks to offer twice (2X or 200%) the daily performance of the Dow Jones US Oil & Gas Index. The index measures the performance of energy companies, including oil drilling equipment and services, coal, major oil companies, minor oil companies, pipelines, liquid, solid or gaseous fossil fuel producers and utility companies. services.

ProShares Ultra Oil & Gas ETF was able to manage $227.4 million in its asset base and trades a good volume of around 69,000 shares per day on average. DIG charges 95 basis points of fees per year.

Direxion Daily Energy Bull 2X (ERX) Shares

Direxion Daily Energy Bull 2X Shares creates a double-leveraged position in the Energy Select Sector Index, while charging 95 basis points in fees per year.

Direxion Daily Energy Bull 2X Shares is a popular and liquid option in the leveraged energy space with an 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)

Direxion Daily S & P Oil & Gas Exploration & Production Bull 2X Shares offers exposure two times 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 average daily volume is solid at around 1.7 million shares. The ETF charges 95 basis points in annual fees (read: Leveraged ETF: how to use it and what’s hot now?).

MicroSectors US Big Oil Index 3X leveraged ETN (NRGU)

MicroSectors US Big Oil Index 3X Leveraged ETN provides three times (3X or 300%) leveraged exposure to the Solactive MicroSectors US Big Oil Index, which is weighted in equal dollars and provides exposure to the 10 largest energy companies and American oil companies.

MicroSectors US Big Oil Index 3X Leveraged ETN was able to manage $1.1 billion in its asset base while trading an average daily volume of 292,000 shares. The expense ratio is 0.95%.

3X Leveraged ETN Oil & Gas Exploration & Production Microsectors (OILU)

MicroSectors Oil & Gas Exploration & Production 3X Leveraged ETN is linked to three times the leveraged performance of the MicroSectors Oil & Gas Exploration & Production index. The index provides exposure to large capitalization companies that are domiciled and listed in the United States and 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 is trading in a lower average volume of 31,000 million shares. It charges investors 95 basis points in annual fees and expenses.

Conclusion

As a caveat, investors should note that these products are extremely volatile and only suitable for short-term traders. Additionally, daily rebalancing – when combined with leverage – can cause these products to deviate significantly from expected long-term performance figures (see: all leveraged equity ETFs here) .

Nevertheless, for ETF investors who are bullish on the energy sector in the near term, either of the above products may be an attractive choice. Obviously, a long to short run could be intriguing for those with a high risk tolerance who believe the trend is the friend in this corner of the investing world.

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Direxion Daily Energy Bull 2X Shares (ERX): ETF Research Reports

Direction Daily S&P Oil & Gas Exp. & Prod. Bull 2X (GUSH) shares: ETF research reports

ProShares Ultra Oil & Gas (DIG): ETF Research Reports

Microsectors Oil & Gas E&P 3X Leveraged ETN (OILU): ETF Research Reports

MicroSectors US Big Oil Index 3X Leveraged ETN (NRGU): ETF Research Reports

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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