Interactive Investor

The ETF that would have lost you almost all your money this year

6th July 2021 10:42

Tom Bailey from interactive investor

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In a year when oil prices have rebounded strongly, being in this ETF has been disastrous.

Those who invested in the WisdomTree WTI Crude Oil 3x Daily Short ETN (LSE:3SOI) at the start of the year now have just a fraction of their money left. Measured since the start of the year, the exchange-traded fund (ETF) is down 81.3%.

That, of course, is because the price of oil has surged. Measured year-to-date, WTI Crude is up by around 56%, sitting at around $75 per barrel.

There are several reasons behind this. The first, and primary, reason is the revival of economic growth. More economic growth means more demand, which in turn means higher prices.

Adding to this, OPEC and other oil-producing countries have yet to agree on a new deal on increasing supply to meet this demand. A recent meeting between OPEC and other oil exporters ended with no deal due to disagreement among participants. 

As a result, any investor who has been “short” oil will have seen losses. However, for investors in the WisdomTree WTI Crude Oil 3x Daily Short ETN, those losses would have been even more pronounced.

As the name of the ETF suggests, it provides the investor with a leveraged short position. What this means is that if the price of oil changes by 1%, the investors get the opposite return, multiplied by three. So, for example, if WTI Crude rises by 10% in one day, the investor loses 30%.

In a year when oil prices have rebounded strongly, being in this ETF has been disastrous. Of course, all leveraged ETFs are highly risky products. In particular, they become more risky when you start to hold them for more than one day, as explained here.

While oil has been on a rally, other commodities have also seen strong price rises, for similar reasons. As a result, the WisdomTree Natural Gas 3x Dl Short ETP (LSE:3NGS) would have also lost investors 75% and the WisdomTree Copper 3x Daily Short ETP (LSE:3HCS) around 50%.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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