Leveraged Oil Lottery Ticket Keeps Pulling In Assets

Things are getting worse for oil and oil-related exchange-traded products. As of Friday's afternoon trading session, nearly 60 exchange-traded products have hit all-time lows. Of that group, 27 are commodities products, and that does not include a number of currency, fixed income and international ETFs with significant exposure to commodity-producing countries.

And of that group of 27, a third are dedicated oil ETFs and exchange-traded notes (ETNs). The United States Oil Fund LP (ETF) (NYSE:USO), which tracks front-month West Texas Intermediate futures, is one of the oil ETFs in Friday's all-time low club. Down 2.64 percent at Friday's close, USO is extending its year-to-date loss to around 45.5 percent.

'Good Money Going After Bad Trade'

Yet, in the epitome of a good money going after bad trade, USO has seen fourth-quarter inflows of over $1.2 billion. With money managers and other professionals barely willing to nibble at oil from the long side, there is little in the way of institutional support for energy stocks and ETFs. That and the Organization of Petroleum Exporting Countries (OPEC) stubbornly refuses to cut production to prop up prices.

Knowing all that, it might appear that a long trade in the VelocityShares 3x Long Crude ETN linked to the S&P GSCI (NYSE:UWTI) would be akin to a kamikaze mission, but it is a mission plenty of traders seem willing to sign-up for. UWTI, which tracks three times, or 300 percent, the daily performance of WTI crude, is one of the other oil ETNs in Friday's all-time low club.

Looking At You, UWTI

UWTI has pulled in an impressive $>650 million just in the trailing one month period, making $1.6 billion in net inflows year to date in this ETF. The fund is very popular in daily trading given the high level of interest in Crude Oil daily movements via the futures market and, of course, the budding Crude Oil linked ETP market.

UWTI debuted back in February of 2012 but has really started to make its mark in the greater 'Crude Oil' ETP category in 2015 given the continued unabated slide in spot prices, and the ETN is actually the second largest fund in the category now in terms of asset size behind whom else but USO, said Street One Financial Vice President Paul Weisbruch in a note out Friday.

This is how bad things are for UWTI. The ETN is lower by more than 8.25 percent on the trading and traded at a $4.11 handle at Friday's close. That is after UWTI was reverse split one-for-10 90 days ago; meaning over that period, the ETN has slumped a staggering 59.6 percent. UWTI might have further to fall before its issuer announces a reverse split, as it resided around $1.20 at the time of the previous reverse split announcement.

As most investors and traders should of course understand by now in late 2015, daily levered products tend to under-perform over time in markets that are moving counter-trend longer term to their Bull or Bear bias. And Crude Oil happens to be an asset this year that has just had a tremendously difficult time in rallying even for a short while in any case in 2015, added Weisbruch.

Image Credit: Public Domain