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8 Inverse Leveraged ETFs That Soared 70% or More in 2015

Zacks Equity Research

The year 2015 may have been dull and quite for the broader market, breaking a prolonged bull run, but a few segments kept the market noisy. Crude oil takes the first spot in this league followed by other forms of energy like natural gas while overall commodities, metals and some country investments round out the top five positions.

Definitely, these noises emanated from panic; not from cheers. The persistent slump in oil prices, a broad-based acute slump in commodities, a super slowdown in metals instigated mainly by the China-led worries (China is the main consumer of global metals) and upheaval in some countries like Brazil kept the global stock returns at check in 2015.

However, as they say –– someone's pain is someone’s gain. The rule applies in the ETF world as well. There are plenty of investment opportunities in the ETF world to make quick and hefty bucks from any investment’s downturn via an inverse leveraged approach.

However, these funds run high risk of losses compared with traditional funds due to the short-term nature of investments of the former. Further, their performances could vary significantly from the actual performance of their underlying index over a longer period when compared to a shorter period. These investments are not meant to be held for long and vary big-time even with slight changes in investment dynamics.

Whatever the case, below we highlight eight inverse leveraged ETFs that have offered at least 70% returns so far this year (as of December 29, 2015) against the S&P-based broader market ETF SPY’s 0.9% gains. Notably, Zacks does not rank inverse and leveraged ETFs in view of their short-term performance objectives.

DB Crude Oil Double Short ETN (DTO) – Up 100.88%

Oil is presently the worst investment possible due to an acute supply gut and low demand issues. Talks about no production cut from OPEC nations added further woes to this liquid commodity investment. As a result, ETFs shorting oil-related index made huge gains (read: 5 ETF Losers of 2015 Hoping for a Rebound in 2016).

This ETN provides twice the inverse exposure to the Deutsche Bank Liquid Commodity Index-Light Crude, which tracks the performance of a basket of WTI oil futures contracts. It has amassed $64.4 million in its asset base and trades in a moderate daily volume of roughly 90,000 shares. The product charges 75 bps in fees per year from investors (read: Still Believe in Goldman's $20 Oil? Go Short With These ETFs).

ProShares UltraShort Bloomberg Crude Oil (SCO) offering twice the negative impact of the daily performance of the Bloomberg WTI Crude Oil Subindex has added 79.33% so far this year (as of December 29, 2015). VelocityShares 3x Inverse Crude Oil ETN (DWTI) is yet another inverse leveraged crude fund that has gained 76.42% during this timeframe.

ProShares UltraShort Bloomberg Natural Gas (KOLD) – Up 83.69%

The condition was the same for natural gas. Lower oil prices pulled down all energy sources. Also, predictions of warmer winter in the northern hemisphere dealt a blow to natural gas prices.

This fund provides two times inverse exposure to the daily performance of the Bloomberg Natural Gas Subindex, which seeks to reflect the natural gas segment of the commodities market through futures contracts. KOLD has managed assets of $11.3 million and sees lower average daily volume of under 28,000 shares. Expense ratio comes in at 0.95% (read: More Pain Ahead for Natural Gas? 2 Bear ETFs to Play).

Another inverse leveraged natural gas ETF VelocityShares 3x Inverse Natural Gas ETN (DGAZ) has returned about 81.22% so far in 2015 (as of December 29, 2015).

ProShares UltraShort MSCI Brazil Capped ETF (BZQ) – Up 81.76%

Brazil has been in a technical recession this year. Plus, greenback strength, high inflation and political upheaval crippled Brazilin investing to the core (read: Brazil Stocks, ETFs Ignore Slump: Rally on Rousseff Issues).

This fund seeks to deliver twice (2x or 200%) the inverse (or opposite) performance of the MSCI Brazil 25/50 Index. The benchmark is a market capitalization weighted index designed to measure the equity market performance of the Brazilian market. The product has amassed $29.7 million in its asset base while charging 95 bps in fees and expenses. It trades in moderate volume of about 40,000 shares a day.

PowerShares DB Commodity Double Short ETN (DEE) – Up 77.58%

The year 2015 went utterly haywire for broad-based commodities. Demand-supply imbalances and global growth issues affected the demand profile and thrashed this space.

This note also allows investors to go short on commodities with a two times leveraged factor with the same expense ratio. Unlike BOM, this product tracks the performance of the Deutsche Bank Liquid Commodity Index, which consists of underlying futures contracts on six commodities: wheat, corn, light sweet crude oil, heating oil, gold and aluminum. Energy accounts for about 60% of the portfolio while agricultural, industrial metals and precious metals make up for 20%, 12% and 9%, respectively. It has AUM of $2.2 million and average daily volume of about 200 shares. 

PowerShares DB Base Metals Double Short ETN (BOM) – Up 69.74%

This ETN provides twice the inverse exposure to the daily performance of the Deutsche Bank Liquid Commodity index – Optimum Yield Industrial Metals Excess Return – which seeks to measure the performance of underlying futures contracts on aluminum, copper and zinc. In particular, aluminum accounts for 36.2% share, closely followed by copper (35.2%) and zinc (28.6%). It has paltry AUM of $3.3 million and sees volume of less than 2,000 shares a day on average. The product charges 0.75% in expense ratio (see: all the Inverse Commodity ETFs here).

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