The volatile commodity markets have attracted traders to hop on Leveraged Commodity ETFs. Find out why this is currently happening here.
Commodities have been on a roll since the COVID-19 pandemic emerged with prices of various edible and non-edible commodities reaching record or multi-year highs. Supply chain disruptions, port congestions and soaring demand are to blame. The Russia-Ukraine war came and exacerbated the situation by depriving the world of a large slice of key commodities such as wheat, gas, oil, and metals. To put things into perspective, Russia and Ukraine account for nearly a third of wheat and barley exports, and about a fifth of the corn trade (FAOTSTAT). On the energy side, Russia is responsible for 17% of global natural gas production, 12% of oil production, and 40% of Europe’s natural gas imports (Europa.eu). In addition, Russia produces about 7% of the world's nickel, 6% of the global mined aluminium, about 3.5% of the world's copper supply, and a small portion of the world's zinc output (~2.2%).
The cooldown of oil, gas and industrial metals industry
The Bloomberg Commodity Index (BCOM), which tracks futures of oil, gas, industrial metals such as copper and aluminium, and grains such as soybeans and wheat, reached a multi-year high of $132.63 on March 8. The index cooled down recently amid optimism that a peace deal between Russia and Ukraine could be reached soon. The deal could reduce the likelihood of more restrictions on Russian commodities, freeing up the global supply.
The volatile commodity markets have attracted traders to hop on Leveraged Commodity ETFs. Through these instruments, bearish and bullish traders can gain access to the commodity markets and amplify their gains. Of course, Leveraged ETFs are double-edged swords and gains can swing to losses overnight. This year, the following 5 Leveraged Commodities ETFs have been among the most popular by net inflows.
Top 5 leveraged commodities ETFs in America
- ProShares UltraShort BLOOMBERG CRUDE OIL (SCO): $398 million
- Horizons BetaPro Natural Gas -2x Daily Bear ETF (HND): $96 million
- ProShares Ultra GOLD (UGL): $89 million
- Horizons BetaPro Crude Oil Inverse Leveraged Daily Bear ETF (HOD): $44 million
- ProShares Ultrashort Gold (GLL): $8.8 million
SCO ETF seeks to realize -2x the return of the Bloomberg Commodity Balanced WTI Crude Oil Index for a single day. The index tracks crude oil futures contracts. For example, if the index rises by 1% over a day, then the SCO will fall by 2%, excluding fees.
The fund has a total expense ratio of 0.95% and trades primarily on the NYSE Arca. The product has gained a lot of interest as WTI Crude Oil futures reach a 13-year high, a few weeks after the war in Ukraine broke out. Bearish trades have been buying SCO to benefit from a retreat in prices.
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