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WisdomTree sees record levels in leveraged oil ETFs

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WisdomTree has seen turnover in its range of leveraged oil ETFs hit a record high of USD10 billion as investors have piled in to benefit from the dramatic recovery in the energy price.

Can commodities soar again in 2017, the firm asks.

 Figures from the group’s Boost range of products in 2016 reveals turnover for leveraged long US Crude oil jumped from USD3.5 billion in 2015 to USD9.9 billion for 2016, with the majority of the inflows coming in the first six months of the year.

Turnover on the long side was more than two times that on the short side across Boost’s range of oil products, amidst an environment which saw the oil price recover off lows below USD26 a barrel at the start of January last year, to finish 2016 at USD54.

Nick Leung, research analyst at WisdomTree, says that the asset may see further interest on the leveraged long side in 2017 if recent price momentum is maintained.

“While the price of oil appreciated significantly last year, it was recovering from multi-year lows following one of the worst slumps ever seen, and there could be more upside to come this year,” he said.
 
“There are a number of factors to watch when investing in oil, including monitoring both China – the world’s second largest consumer of oil – and the all-important Organisation of Petroleum Exporting Countries (OPEC) meetings. However, if OPEC maintains it recent shift in tone, the asset would likely attract a lot of interest again this year.”
 
Leung adds the prevailing trend among leveraged long investors last year was to buy in when prices were falling, something that would provide a floor for the oil price if maintained this year.
 
Other commodities also attracted significant attention last year, in particular gold, with turnover in Boost’s gold ETFs more than trebling from USD194 million in 2015 to USD661 million.
 
As with oil, the majority of trades in gold were focused on the leveraged long side, with USD474 million invested in leveraged longs versus USD187 million in short positions.
 
“Commodities have proven far more popular this year amidst expectations of a shift in the supply/demand cycle following the previous multi-year downturn,” Leung says.
 
“Looking at gold specifically, political risks in 2016 drove investors to invest in safe havens such as gold. The situation across the world looks just as uncertain now, with a number of elections in Europe and the impact of both Brexit and a Trump presidency to contend with. Therefore, gold could well prove a popular hedge for the myriad risks which remain.”
 
Elsewhere, the data reveals that within fixed income markets investors turned against German bunds in 2016, with some USD54 million of shorts placed via Boost’s range, compared to almost no activity in leveraged long positions, amidst persistently low yields for the debt.
 
Meanwhile, positioning around the US election saw monthly turnover for both long and short positions in US equities spike in November to USD103 million and USD43 million respectively, helping take total turnover in Boost’s S&P 500 products to USD777 million last year. This was a more than 10-fold increase from the USD58 million seen in 2015.
 
“Investors expressed sentiment around political uncertainty in the US, with the S&P 500 seeing increased turnover and flows, and it will be interesting to monitor how bullish investors remain in 2017 as Trump enacts his policies,” Leung says.

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