Market Overview

Leverage Bullish Oil ETN Gets An Upsizing As Crude Prices Falter

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Leverage Bullish Oil ETN Gets An Upsizing As Crude Prices Falter

Oil is one of this year's worst-performing commodities and the energy sector is the worst-performing group in the S&P 500, a combination that would appear to encourage traders from making bullish bets on energy equities.

Additionally, concerns are growing about the ability of some large oil companies to sustain dividends at current levels. In other words, the energy sector is a minefield right now, but there are indications some traders are willing to bet on a rebound.

The MicroSectors U.S. Big Oil Index 3X Leveraged Exchange Traded Notes (NYSE:NGRU) is proof positive that some bold traders see near-term upside in the downtrodden energy patch.

Why It's Important

REX Shares, the company behind the MicroSectors lineup of exchange traded notes, Bank of Montreal (BMO) – the issuing bank for NGRU and the other ETNs – is upsizing the triple leveraged oil product to $75 million from $50 million.

MicroSectors has been down this road before, upsizing one of its triple-leveraged FANG ETNs several times to accommodate increased demand from traders.

NGRU looks to deliver triple the daily returns of the Solactive MicroSectors U.S. Big Oil Index, collection of 10 large-cap energy stocks that are equally weighted, a strategy that reduces exposure to behemoths Exxon (NYSE: XOM) and Chevron (NYSE: CVX), which typically dominate traditional energy index funds.

“As of today, each index has over 40% of exposure to these two securities despite including a basket with a larger number of energy stocks. As of February 28, 2020 the Energy Select Sector Index had 28 constituents and the Dow Jones U.S. Oil & Gas Index had 49 constituents. Regardless of that diversification, investors may not be aware of the current stock concentration,” said Scott Acheychek, President of REX Shares.

What's Next

Oil prices are probing multi-decade lows and the energy sector is seeing its weight in the S&P 500 dwindle, but some market observers see value in the battered sector.

Of course, value is a longer-ranging proposition, but any short-term rallies in crude prices could propel significant upside in NGRU.

“NRGU offers sophisticated investors daily resetting 3X leverage. Despite the substantial sell off in energy stocks, there continues to be strong demand for NRGU,” said Acheychek.

 

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