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The Zacks Analyst Blog Highlights: ERX,DIG,GASL,GUSH and UOP

Zacks Equity Research

For Immediate Release

Chicago, IL – October 13, 2015 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. ETFs recently featured in the blog include the Direxion Daily Energy Bull & 3x Shares (ERX), ProShares Ultra Oil & Gas ETF (DIG), Direxion Daily Natural Gas Related Bull 3x Shares (GASL), Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares (GUSH) and ProShares Ultra Oil & Gas Exploration & Production ETF ( UOP).

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Here are highlights from Monday’s Analyst Blog:

5 Ways to Play Oil’s Rebound with ETFs

After a bumpy ride, oil regained its momentum with the start of the fourth quarter, indicating that the worst might be over for the commodity. All credit goes to improving demand/supply dynamics, which are rebuilding the lost confidence in the rebalancing of the oil market.

This is especially true as Nymex crude is now comfortably hovering around the key threshold $50 per barrel, having gained 11% since the start of October while Brent oil jumped 10.4% (read: Four Energy ETFs Rallying Hard on Oil Rebound ).

Improving Fundamentals

The steep gains came on the heels of dwindling supply, improving demand and an increased willingness by major oil producers to support the prolonged slump in the market. In particular, production in the U.S. and non-OPEC countries is declining while global demand is increasing.
U.S. oil output is expected to decline from 9.25 million barrels per day (bpd) in 2015 to 8.86 million bpd in 2016 while non-OPEC production will likely fall by 0.5 million bpd next year, the sharpest drop in more than two decades.

The Energy Information Administration (EIA) expects global oil demand for 2016 to increase at the fastest pace in six years, suggesting that oversupply is easing faster than expected.

Overall, the OPEC Secretary General, Abdalla Salem El-Badri, projects the oil market to be more balanced next year as the gap in crude oil supply and demand will likely close in the third quarter of 2016. It foresees global demand to grow to 110 million bpd by 2040 from the current 93 million bpd. On the other hand, Qatar’s energy minister, Mohammed Al Sada, expects oil prices to have bottomed out and supplies from non-OPEC countries to turn negative next year while demand to rise to 30.5 million bpd from 29.3 million bpd in 2015.

Further, a declining rig count and the weakening dollar of late are adding to the strength. Given the renewed optimism and signs that the oil market may begin to tighten, many investors have turned bullish and are seeking to tap this opportunity. For them, there are two ways to play this surge – one by directly playing through the futures contracts and the other through equities (read: Oil ETFs Head to Head: USO vs DBO ).

Equity ETFs Beating Futures

Out of the two ways, equities are leading the current oil rally given that the ultra-popular United States Oil Fund, providing exposure to the Nymex crude, gained 8.9% since the start of October while an equity-based ETF like Energy Select Sector SPDR is up 12.6%. This is because revenues and earnings of oil producers are closely tied to oil prices. Acting as a leveraged play, oil stocks tend to experience more gains or losses than oil itself in a rising or falling commodity market.

As a result, equity based oil ETFs will continue to be the real winners in the weeks ahead if oil price continues to rise. Investors can definitely look into the leveraged products in this space for outsized returns. Notably, leveraged ETFs could lead to huge gains in a very short time frame when compared to the simple products. Below, we have highlighted five equity-based leveraged ETFs that could be excellent picks for investors seeking to make large profits from the energy space in a short span (see: all Leveraged Equity ETFs here ):


Direxion Daily Energy Bull & 3x Shares ( ERX )

This fund creates a triple (3x or 300%) leveraged long position in the S&P Energy Select Sector Index while charging 95 bps in fees a year. It is a popular and liquid option in the energy leveraged space with AUM of $557.2 million and average trading volume of 2.3 million shares. The ETF gained over 41% since the start of October.

ProShares Ultra Oil & Gas ETF ( DIG )

This ETF seeks to deliver twice (2x or 200%) the daily performance of the Dow Jones U.S. Oil & Gas Index. It has been able to manage $153.4 million in its asset base with trades in a good volume of more than 186,000 shares per day on average. The product is up 26.7% in the same time frame.

Direxion Daily Natural Gas Related Bull 3x Shares ( GASL )

This product seeks to deliver thrice the daily performance of the ISE Revere Natural Gas Index, which derives a substantial portion of its revenues from the exploration and production of natural gas. The fund is often overlooked by the investors as depicted by its AUM of $63.7 million and average daily trading of 161,000 shares. Expense ratio comes in at 0.95%. The fund has delivered whopping returns of 104.1% since the start of October.

Direxion Daily S&P Oil & Gas Exploration & Production Bull 3x Shares ( GUSH )

This fund offers triple exposure to the daily performance of the S&P Oil & Gas Exploration & Production Select Industry Index. It debuted in the space only four months ago, and has accumulated $10 million in its asset base. Average daily volume is low at around 58,000 shares while expense ratio is 0.95%. The product has gained 74.6% in the same time frame.

ProShares Ultra Oil & Gas Exploration & Production ETF ( UOP )

This product also tracks the S&P Oil & Gas Exploration & Production Select Industry Index, but offers twice the returns of the daily performance with the same expense ratio as that of GUSH. It has AUM of just $2 million and trades in a paltry volume of 1,000 shares. UOP is up over 49% so far this month.

Bottom Line

As a caveat, investors should note that these products are extremely volatile and suitable only for short-term traders. Additionally, the daily rebalancing – when combined with leverage – may make these products deviate significantly from the expected long-term performance figures (read: 10-Minute Guide to 10 Most Popular Leveraged ETFs ).

Still, for ETF investors who are bullish on oil for the near term, either of the above products can be an interesting choice. Clearly, a near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.

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DIR-EGY BULL 3X (ERX): ETF Research Reports
 
PRO-ULT OIL&GAS (DIG): ETF Research Reports
 
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DIRX-D SP OG BL (GUSH): ETF Research Reports
 
PRO-SH O&G E&P (UOP): ETF Research Reports
 
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