By Michael Johnston:
VelocityShares has significantly increased its leveraged ETP lineup, recently announcing eight new products that offer amplified exposure to various natural resources. The new ETNs will offer 3x and -3x exposure to natural gas, crude oil, and Brent crude, as well as 2x and -2x products targeting indexes comprised of copper futures. The new ETNs will join a VelocityShares lineup that already includes products offering leveraged exposure to gold (:UGLD), (:DGLD), silver (:USLV), (:DSLV), platinum (:LPLT), (:IPLT), and palladium (:LPAL), (:IPAL).
Each of the products will be lined to indexes comprised of futures contracts on the underlying commodities, and each will be structured as exchange-traded notes issued by Credit Suisse. That means that investors will be exposed to the credit risk of the issuing institution, but will avoid the tracking error that can become significant in futures-based products that utilize leverage.
|[[DOIL]]||3x Inverse Brent Crude ETN linked to the S&P GSCI Brent Crude Index Excess Return|
|[[UOIL]]||3x Long Brent Crude ETN linked to the S&P GSCI Brent Crude Index Excess Return|
|[[UWTI]]||3x Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return|
|[[DWTI]]||3x Inverse Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return|
|[[DGAZ]]||3x Inverse Natural Gas ETN linked to the S&P GSCI Natural Gas Index Excess Return|
|[[UGAZ]]||3x Long Natural Gas ETN linked to the S&P GSCI Natural Gas Index Excess Return|
|[[SCPR]]||2x Inverse Copper ETN linked to the S&P GSCI Copper Index Excess Return|
|[[LCPR]]||2x Long Copper ETN linked to the S&P GSCI Copper Index Excess Return|
First To Market ETPs
DOIL and UOIL are the first products to offer leveraged exposure to Brent Crude oil. United States Commodity Funds was previously the only issuer to cover this corner of the commodity market; the United States Brent Oil Fund (:BNO) is a futures-based product that invests in short-term contracts linked to Brent. In recent years, Brent crude has become an increasingly important benchmark in global oil markets, and occasionally traded at a significant premium to West Texas Intermediate (:WTI). That disconnect exists because of a glut of oil in the U.S., compared to ongoing supply issues in Europe and stronger demand from emerging markets.
The new leveraged products could potentially be used in strategies to bet on changes in the premium of Brent relative to WTI, allowing investors to construct positions that could reflect expectations for changes in the relative prices of the two energy commodities. That premium has varied significantly in recent months, creating opportunities to generate short-term profits. “This launch further demonstrates our dedication to developing sophisticated exchange traded products for institutional investors.” said Nick Cherney, Co-founder and Chief Investment Officer of VelocityShares.
SCPR and LCPR are also the first leveraged ETPs to target copper, joining three existing products ([[JJC]], [[CPER]], [[CUPM]]) that offer exposure to the metal. Copper prices have jumped by more than 10% so far in 2012 on a surge in demand and general appetite for risky assets.
In addition to the commodity ETNs highlighted above, the VelocityShares product lineup consists of a number of products linked to indexes consisting of VIX futures contracts.
Disclosure: No positions at time of writing.
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- Brent crude