VelocityShares, the exchange-traded note firm known for its volatility products, today launched four bull-and-bear pairs of leveraged ETNs that tap into energy markets as well as copper through futures-type exposure.
With today’s rollout, VelocityShares is adding copper to its roster of metals plays that already tap into everything from gold to silver to platinum and palladium. The triple-exposure crude oil and natural gas ETNs VelocityShares is serving up will compete with double-exposure funds from ProShares.
Commodities have been booming for more than a decade, and while the boom is closely linked to developing-world demand, most argue that the emerging markets story will be central to global growth in coming decades. VelocityShares’ new products are at least partly an indirect reflection of the emerging markets story.
The new VelocityShares ETNs range in price from 1.35 percent to 1.65 percent a year—a bit more than the 0.95 percent ProShares charges for its double-exposure bull-and-bear pair of ETFs focused on the oil and gas markets, respectively.
The funds, their benchmarks and fees include:
- VelocityShares 3x Long Brent Crude ETN (NYSEArca:UOIL - News), which is designed to provide exposure to three times the daily performance of the S'P GSCI Brent Crude Index Excess Return. It costs 1.35 percent.
- VelocityShares 3x Inverse Brent Crude ETN (NYSEArca:DOIL - News), which gives inverse exposure to three times the same index. It costs 1.35 percent.
- VelocityShares 3x Long Natural Gas ETN (NYSEArca:UGAZ - News), which is designed to provide exposure to three times the daily performance of the S'P GSCI Natural Gas Index Excess Return. It costs 1.65 percent.
- VelocityShares 3x Inverse Natural Gas ETN (NYSEArca:DGAZ - News), which gives inverse exposure to three times the daily performance of the same index. It costs 1.65 percent.
- Velocity Shares 3x Long Crude Oil ETN (NYSEArca:UWTI - News), which provides exposure to three times the daily performance of the S'P GSCI Crude Oil Index Excess Return. It costs 1.35 percent.
- VelocityShares 3x Inverse Crude Oil ETN (NYSEArca:DWTI - News), which gives inverse exposure to three times the daily performance of the same index. It costs 1.35 percent.
- VelocityShares 2x Long Copper ETN (NYSEArca:LCPR - News), which is designed to provide exposure to twice the daily performance of the S'P GSCI Copper Index Excess Return. It costs 1.35 percent.
- VelocityShares 2x Inverse Copper ETN (NYSEArca:SCPR - News), which gives inverse exposure to two times the performance of the same index. It costs 1.35 percent.
Each of the corresponding S'P GSCI benchmarks is an excess return subset of the broader-world production-weighted S'P GSCI Index, and comprises futures contracts in each of the commodities markets.
The ETNs don’t actually own physical commodities, but holders of the notes are promised the returns delivered by the underlying indexing methodologies.
They are senior medium-term notes of Credit Suisse AG maturing on Feb. 9, 2032.
To be sure, such geared and inverse investment products aren’t for just any investor. Their returns can deviate significantly from their underlying indexes because of the leverage and their daily rebalancing.
As it was pointed out in paperwork filed with regulators prior to today’s launch, these ETNs are instead designed for the “sophisticated investor” and are tools for managing daily trading risks.
All in all, however, a large minority of investors have taken to geared plays.
At the end of last year, ProShares, the biggest firm specializing in leveraged and inverse products, had more than $23 billion under management, according to data compiled by IndexUniverse. Direxion, the No. 2 purveyor, had almost $7 billion in assets.
ETNs, unlike ETFs, are notes that promise holders returns consistent with indexing methodology. VelocityShares ETNs are backed by the full faith and credit of Credit Suisse. All the regulatory filings made in connection wth the new ETNs were made by Credit Suisse.
VelocityShares Back Story
VelocityShares is mostly known for a group of VIX-linked funds backed by Credit Suisse that include the market’s first that offer investors double exposure to volatility. It says it now has more than $1 billion in 22 ETNs, including the VelocityShares Daily Inverse VIX Short-Term ETN (NYSEArca:XIV - News), which has $418 million in assets.
Those double-exposure volatility securities are the VelocityShares Daily 2X VIX Short-Term ETN (NYSEArca:TVIX - News) and the The VelocityShares Daily 2X VIX Mid-Term ETN (NYSEArca:TVIZ - News), which have gathered $477 million and $7.4 million in just over a year.
The company was co-founded by Greg King, Richard Hoge and Nick Cherney in 2009. Cherney is also the company's chief investment officer.
King left VelocityShares and is now at Credit Suisse.
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