Some Leveraged Oil ETFs and ETNs Down Over 67% in 2014
Global oil prices were weak throughout 2014 due to weak demand as well as a stronger US Dollar. In December alone, the price of crude oil in the US fell by 21.3%, and finished the year down more than 55% since June. Several leveraged crude oil investment funds actively trade in the US in the form of exchange traded funds (ETFs) and exchange traded notes (ETNs).
Leveraged ETFs and ETNs are set up to track the daily performance of an underlying index or strategy, usually by two or three times in the same (bull) direction or inverse (bear) direction, by purchasing or selling complex option and derivative contracts in addition to the underlying securities.
The following leveraged funds that track crude oil were down over 67% each in 2014:
| Ticker | Fund Name | 2014 Performance |
| UWTI | VelocityShares 3X Long Crude Oil ETN | -84.17% |
| UCO | ProShares Ultra Bloomberg Crude Oil | -67.82% |
Leveraged funds are generally not suitable for long-term investors, as the investment will ultimately lose value or significantly underperform, over a longer term, compared to its stated objective. In fact, Direxion Funds, a leader in leveraged ETFs, puts this disclosure in bold print on its web-page for each of its leveraged funds: “The fund should not be expected to provide [the multiple] times the return of the benchmark’s cumulative return for greater than a day.” Therefore, these leveraged funds are highly unsuitable for long term investors.
If your financial advisor or stockbroker recommended that you invest in leveraged crude oil securities, you may have options to recover your investment loss. If your advisor failed to fully disclose the risks of investing in leveraged crude oil securities, then you may have a claim for misrepresentation. If your investment objective was to only invest in safe and stable investments, you may have a claim for unsuitability. If leveraged crude oil securities made up a large portion of your portfolio, then you may have a claim for over-concentration and lack of diversification. If your advisor purchased this fund without your knowledge, you may have a claim for unauthorized trading. If your advisor purchased this fund on margin, you may have a claim for excessive use of margin and negligence.
The attorneys at Carlson & Associates, P.A., located in Miami, Florida, represent investors who have lost money due to the improper conduct of financial advisors. If you would like to have a free consultation, we can be reached at (305) 372-9700 to discuss your options.