VelocityShares Credit Suisse 3X Long Crude ETN (UWTIF)

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6 Oil ETF Alternatives To Ill-Fated UWTI & DWTI

A few weeks from now, two popular oil exchange-traded notes will receive a near-fatal blow when they are delisted from the NYSE. After Dec. 8, the VelocityShares 3x Long Crude Oil ETN (UWTI) and the VelocityShares 3x Inverse Crude Oil ETN (DWTI) will no longer be viable options for most traders.

But just because they won't be available to trade doesn't mean the demand for these types of products is going away anytime soon. Combined, UWTI and DWTI have $1.7 billion in assets, a substantial sum. They are also heavily traded, with hundreds of millions of dollars’ worth of UWTI and DWTI shares exchanging hands each day.

By offering the ability to leverage already-volatile moves in crude oil prices by a factor of three, UWTI and DWTI have gathered quite the following among aggressive traders of all stripes, and particularly retail traders. Soon, those traders will be forced to look for alternative products to get the leveraged oil exposure they want.

Geared Oil Fund Options

Here are some potential substitutes currently available on the market:

ProShares Ultra Bloomberg Crude Oil (UCO)

The ProShares Ultra Bloomberg Crude Oil (UCO) is the largest competitor to UWTI, with nearly $1 billion in assets. The main difference between UWTI and UCO is that the latter only provides 2x the daily return of crude oil futures compared with 3x for the former (currently, there are no U.S.-listed ETPs available that provide 3x exposure to oil other than UWTI).

The other difference between the two is that UWTI is an ETN, while UCO is an ETF. The two structures have differing tax implications for investors, which can you can read about here.

Additionally, as an exchange-traded fund, UCO isn't subject to counterparty risk like UWTI is.

ProShares UltraShort Bloomberg Crude Oil (SCO)

The ProShares UltraShort Bloomberg Crude Oil (SCO) is the sister fund of the aforementioned UCO and an alternative to DWTI. SCO provides 2x inverse exposure to the daily movements of crude oil futures. It's structured as an ETF and currently has $138 million in assets.

Direxion Daily Energy Bull 3x Shares (ERX)

Like UWTI, the Direxion Daily Energy Bull 3x Shares (ERX) provides 3x leveraged exposure. But that exposure is to a basket of energy equities (energy stocks within the S&P 500) rather than oil futures.

In general, energy equities tend to move in the same direction as oil futures?but not always. For example, when the stock market rises or falls significantly, that can push energy equities up or down, regardless of what oil futures are doing on any particular day.

ERX is obviously not a perfect substitute for UWTI, but for traders who want as much leverage as they can get, it's an option. Right now, the fund has more than $535 million in assets.

Direxion Daily Energy Bear 3x Shares (ERY)

The Direxion Daily Energy Bear 3x Shares (ERY) is the sister fund of ERX. It provides 3x inverse exposure to the energy stocks within the S&P 500. ERY has $55 million in assets.

Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH)

Similarly to ERX, the Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH) gives traders 3x leveraged exposure to energy equities. The only difference is that GUSH uses an equal-weighted basket of exploration and production stocks as opposed to ERX's market-cap-weighted basket of energy heavyweights.

This makes GUSH the more volatile option for leveraged, long exposure to energy stocks. For traders in UWTI who are used to extreme volatility, GUSH?which has $63 million in assets—may be a great alternative.

Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (DRIP)

The Direxion Daily S&P Oil & Gas Exploration & Production Bear 3x Shares (DRIP) is the inverse counterpart to GUSH. DRIP is the smallest fund on this list, with only $20 million in assets.

Contact Sumit Roy at [e-mail]

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