WisdomTree Europe writes that investors have jettisoned long oil ETFs following OPEC’s recent decision to curb production, with USD43 million in redemptions from leveraged long positions and an 80 per cent year on year jump in trading volumes.
Data from WisdomTree’s Boost range of products revealed investors moved quickly to lock-in gains from the OPEC meeting, opting to exit trades – and, in many cases, take short positions – even in advance of the crucial gathering of non-OPEC members on 11 December, the company reports.
In total, close to USD700 million was traded in Boost Oil ETPs in the aftermath of the OPEC decision, bringing year to date on exchange traded activity to over USD8.4 billion and primary market activity to over USD1.4 billion.
Nick Leung, Research Analyst at WisdomTree, says: “The widespread profit-taking that we’ve seen comes on the back of a surge in oil prices and was widely expected given the contrarian and often speculative nature of short and leveraged oil investors.”
This reversal mirrors the solid inflows into leveraged long oil ETPs earlier in the month. Some USD60 million of net inflows was seen across these products in the first two weeks of November as investors anticipated a supply-cut agreement being reached.
Despite the subsequent rally in oil prices, Leung suggested that caution remains the watchword for now, with long-term concerns over supply/demand imbalances yet to be fully addressed.
“This reversal in S&L investor sentiment suggests there is scepticism about the long-term success of OPEC’s revised strategy. In particular, investors remain unconvinced that OPEC countries can commit to any meaningful production cuts. Any price increases are likely to be limited to short-term tactical opportunities,” he says.
Outside of oil markets, Boost also saw a sharp pickup in activity around Italian bonds as investors sought to capitalise on the rejection of constitutional reform in the recent referendum.
Investors trading the Boost 3x Short Italian treasury bonds (known as BTPs) saw turnover jump tenfold for the month of November, compared to the monthly average for 2016.
This trend played out against a backdrop of rising bond yields in the run-up to the referendum, with yields jumping by up to 100bps in the preceding three months.
“Investors were very active around the Italian referendum with the increase in political and economic risks providing investors with an opportunity to take speculative positons,” Leung says.