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Investing In UWTI? Here's Why It May Be A 'Toxic' Asset

Investing In UWTI? Here's Why It May Be A 'Toxic' Asset
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On Thursday's edition of Benzinga's PreMarket Prep, co-host Dennis Dick got to talking about UWTI, VelocityShares 3x Long Crude Oil ETN. Citing a pair of articles, one from and another from MarketWatch, he explained a few reasons why this is a toxic asset to hold in your portfolio.

  • It has contango, meaning the future price of oil is higher than the present price. With the market in as much contango as it is right now, this can cause massive losses as your return decreases every month.
  • UWTI is down 30 percent year-to-date, even though the front month of oil contracts is up during that time.
  • In the last four years, it's gone from $6,000 a share to $22.
  • You can't short it. Because of high borrowing costs, it can be incredibly costly to hold a short like this long term.

Dick said, "People think 'Ok, I'm in the triple long oil. If oil's up 20 percent this year I'm going to make 60 percent.' That doesn't happen guys. If oil's up 20 percent this year UWTI's probably going to be down. And that's insane!"

Listen to Dennis' rant here.

Still not convinced? Benzinga asked Richard Johnson, vice president of market structure and technology at Greenwhich Associates, about it.

You can listen to full episodes of PreMarket Prep here, and catch the show live every day at 8 a.m. EST here

Posted-In: Dennis DickAnalyst Color Futures Commodities Exclusives Markets Analyst Ratings Trading Ideas Best of Benzinga


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