6 Oil ETF Alternatives To Ill-Fated 'UWTI' & 'DWTI'

November 25, 2016

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.

 

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