10 New Energy ETFs To Play Oil’s Rise

April 13, 2018

YTD Returns For XLE, USO


A plethora of 3x crude oil ETPs launched in 2017 as issuers scrambled to fill the void left by the unexpected delisting of two blockbuster VelocityShares oil ETNs in December 2016.

As their names suggest, UBRT and DBRT provide geared exposure to Brent crude oil futures, while USOU and USOD provide the same exposure to WTI futures. USOU is up 36% for the years, just about what its inverse counterpart is down. When you time movements in oil prices just right, returns in these 3x products can be phenomenal. But the opposite holds true when you get it wrong.

These products are only appropriate for the most aggressive traders who can stomach large swings and huge potential losses.

Employing A Covered-Call Strategy

Another crude-tracking product that launched almost exactly a year ago is the Credit Suisse X-Links Crude Oil Shares Covered Call ETN (USOI). This product uses a covered-call strategy on the aforementioned USO—an ETF that tracks oil futures.

The ETN essentially provides the returns of a rolling front-month crude oil futures strategy plus the premium received from selling 6% out-of-the-money calls each month.

The sales of the calls provide extra returns each month, but investors lose out on upside if oil rallies above the strike price of the calls.

Infrastructure Plays

The third group of energy ETFs to launch in the past year is tied to energy infrastructure companies, including MLPs.

The American Energy Independence ETF (USAI) is the latest. It holds shares of pipeline companies, storage operators and others. Unlike many infrastructure ETFs, USAI caps its holdings of tax-advantaged MLPs at 25% to remain compliant as a regulated investment company. To remain below this threshold, the fund stretches into U.S. and Canadian energy infrastructure firms structured as corporations.

That gives the fund a different flavor than the typical midstream ETF. The top holding is currently Cheniere Energy, a producer and exporter of liquefied natural gas.

You won’t find Cheniere in the holdings for the J.P. Morgan Cushing 30 MLP Index ETN (PPLN), another midstream energy ETF that launched in the past year. PPLN exclusively holds MLPs—30 of them, all weighted equally.

Follow Sumit Roy on Twitter @sumitroy2 or email him at [email protected]

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