Play the booming energy sector with these leveraged ETFs – September 27, 2021

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The price of oil fell, with Brent hitting its highest level since October 2018 and heading towards $ 80 a barrel while WTI jumped to $ 75 a barrel – the highest since July. The rally was driven by supply disruptions and storage reductions as well as growing demand with the easing of pandemic restrictions.

Inventories have fallen sharply in the United States and abroad due to disruptions that could last for months. Oil drillers in the Gulf of Mexico are still struggling to restore production more than two weeks after Hurricane Ida made landfall on the Louisiana coast, with nearly a third of production still at idle. Meanwhile, some members of the Organization of the Petroleum Exporting Countries (OPEC) and their allies, known as OPEC +, are struggling to increase production following underinvestment or delays in work. maintenance due to COVID-19 (read: ETF to win and lose From higher oil prices).

Added to this strength is the growing demand for fuel. Global demand for fuel has rebounded to pre-pandemic levels. With new vaccination mandates to control the growing Delta variant of COVID-19, demand is set to increase. OPEC + in its latest monthly report predicts that demand for oil will increase by 4.15 million barrels per day in 2022, up from 3.28 million barrels per day previously. It also expects demand to reach 100.83 million barrels per day for the year, driven by a stronger than expected recovery in fuel demand and a stable economic outlook in all regions. The OPEC monthly report further indicates that the world will continue to face a supply shortfall over the next few months, even as OPEC countries restart unused production.

Given the supply and demand imbalances, the price of oil has shown strength since the end of August. The strong trend is expected to continue, with major Wall Street banks bullish on commodities, at least in the near term. Goldman Sachs Group (GS) has raised its forecast for Brent oil to $ 90 per barrel, from $ 80 per barrel by the end of the year. Bank of America Corp. estimates that a colder-than-expected winter could push prices up to $ 100 early next year.

How to play?

Amid strong optimism and rising oil prices, the energy sector looks attractive. Many investors have become optimistic about the energy sector and are looking to seize this opportunity. For them, a leveraged energy game could be a great idea as they could see huge payoffs in a very short period of time compared to simple products.

Below, we’ve highlighted leveraged ETFs that could be great choices:

ProShares Ultra Oil & Gas ETF (TO DIG Free report)

This ETF aims to offer twice (2X or 200%) the daily performance of the Dow Jones US Oil & Gas index. It has been able to manage $ 180.5 million in its asset base and trades a good volume of around 65,000 shares per day on average. DIG charges 95 basis points in fees per year and has gained around 81.4% this year.

Direxion Daily Energy Bull 2X shares (ERX Free report)

This fund creates a double leveraged position in the Energy Select Sector index while charging 95bp fees per year. It is a popular and liquid option in the energy leveraged space with assets under management of $ 505.4 million and an average trading volume of approximately 3.4 million shares. ERX has jumped 77.5% so far this year (read: Is it time for crude oil and energy ETFs?).

Direxion Daily S&P Oil & Gas Exploration & Production Bull 2X Actions (NS Free report)

This fund offers exposure that is twice the daily performance of the S&P Oil & Gas Exploration & Production Select Industry index. It has accumulated $ 808.4 million in its asset base and the average daily volume is strong at around 2.2 million shares. The ETF charges 95 basis points of annual fees and has gained 119.8% this year.

MicroSectors US Big Oil Index 3X Leveraged ETN (NRGU Free report)

This ETN offers three times the leveraged exposure of the Solactive MicroSectors US Big Oil Index, which is equally weighted and provides exposure to the 10 largest US energy and oil companies. It was able to manage $ 438.9 million in its asset base while trading an average daily volume of 377,000 shares. The expense ratio is 0.95%. The fund has climbed 117.2% this year.

Final result

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 numbers (see: all leveraged equity ETFs here).

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


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