The best performing ETF/ETN of 2008 gained +484%. However, it has escaped the attention of investors and it doesn’t show up on most of the “best of” lists. That’s because the best performing ETF/ETN of 2008 was an IPO.
Sometimes it’s all about the product. Sometimes it’s all about timing. The best performing exchange-traded product of 2008 had both going for it – it was the right product at the right time, and it also had the right leverage. PowerShares DB Crude Oil Double Short ETF (DTO) made its debut on June 16, 2008. Crude oil was trading around $135 that day and still climbing.
DTO didn’t generate much attention when it came to market. The overwhelming majority of oil forecasts at that time were for higher prices – $150, $200, even $400. Perhaps someone out there was claiming that oil would drop by $100 before year-end, but I don’t recall any such bold predictions.
DTO launched on June 16, 2008 with an IPO price of $25. It closed out the year at $146.03 for a nice +484% gain in just a little more than six months, making it the best performer of 2008.
Leveraged ETFs and mutual funds have garnered a great deal of criticism because the long-term performance does not equal 2x (or -2x) the performance of the underlying index. The peculiarities involved with compounding returns of products that reset their leverage daily have been widely discussed since 1993 with the introduction of Rydex Nova (RYNVX), the first leveraged mutual fund.
However, many market commentators continue to claim that leveraged products are failures because their long-term performance is not an exact multiple of non-leveraged ones. Perhaps someone will write a story about the failure of DTO. After all, using the same logic, a 2x inverse oil fund should have only gained +150%, since oil declined by 75%. With DTO gaining +484%, someone will probably want to label it a disaster for gaining too much. Not me. I think it deserves an award.
Disclosure: no postion in DTO