Investors Rushing Into VelocityShares Oil ETN as Price Plummets
January trading more than doubles on top of second-half surge
Note down 95 percent since July as inverse ETN surged sixfold
By David Wilson
(Bloomberg) – Anticipation of an oil-price rebound transformed an exchange-traded note into one of the most active U.S. securities – and left owners of the ETN counting their losses.
The chart below displays trading in the VelocityShares Daily 3X Long Crude Oil ETN, issued by Credit Suisse Group AG and traded under the ticker symbol UWTI. The note is designed to provide three times the daily return of the S&P GSCI Crude Oil Index, compiled by S&P Dow Jones Indices LLC.
January trading is averaging 83 million shares a day, based on data compiled by Bloomberg through Thursday. That’s more than double the 39 million-share average for all of December.
The ETN is this month’s fourth-most-active security listed on U.S. exchanges. Only a Standard & Poor’s 500 Index exchange-traded fund, Bank of America Corp.’s shares and an iPath ETN linked to the VIX index of S&P 500 volatility have more volume.
Buying and selling of the VelocityShares note began accelerating in July, aftercrude fell below $60 a barrel on the New York Mercantile Exchange. Trading rose by an average of 35 percent a month in last year’s second half as oil dropped to $37.04. This month, U.S. crude tumbled as low as $26.19.
Credit Suisse has a companion ETN that’s designed to rise three times as much as the S&P GSCI oil index when the gauge falls, and vice versa. Trading in the inverse note, which goes by the ticker DWTI, is presented in the chart’s top panel for comparison.
Investors would have been better off owning the inverse ETN than its more active counterpart, as the bottom panel illustrates. The Long Crude Oil note fell 95 percent between the start of July and Thursday after adjusting for a 1-for-10 reverse split in September. The Inverse Crude Oil note rose almost sixfold in the same period.
Thursday marked only the second time this month that the long ETN closed higher. The note rose 13 percent to $1.79. The first was Jan. 14, when the security gained 4.6 percent.