Big Inverse/Leveraged Oil ETNs About To Be Delisted

by: Zacks Funds

Gone are the days when an ETF with substantial asset bore little risk of closure. The latest news of the VelocityShares 3x Long Crude Oil ETN's (NYSEARCA:UWTI) delisting validates this point.

The product has amassed over $1.5 billion in asset, but is set to be delisted on December 9, 2016, as decided by the issuer Credit Suisse AG (NYSE:CS). Notably, Credit Suisse AG will suspend further issuances of these ETNs effective December 9, 2016. However, the ETNs may trade on an over-the-counter basis.

The $222 million VelocityShares 3x Inverse Crude Oil ETN (NYSEARCA:DWTI) also faces the same fate. The explanation is simple. Credit Suisse is "better aligning its product suite with its broader strategic growth plans."

As per, in November, Credit Suisse had announced the closure of another of its ETNs, the Credit Suisse X-Links Cushing MLP Infrastructure ETN (NYSEARCA:MLPN). The trend of shutting down ETNs is viewed by as an effort "to clean up the liabilities on [their] balance sheets." This is justified even more as European banks are now in jeopardy (read: Should You Worry About Deutsche Bank ETFs?).

Investors should note that ETNs are debt securities issued by a bank that are senior but unsecured. Being structured as ETNs, the above-mentioned products carry the associated risk of the issuer's credit worthiness. If the company goes bankrupt, ETN investors have a high risk of losing money especially because these products are unsecured debt.

Having said this, we would like to note that investors eyeing investment options in the oil patch given the recent OPEC output cut deal should not be upset with UWTI no longer being an exchange-traded option (read: OPEC Finally Cuts Output: Energy Stocks & ETFs Up 10% or More).

There is another leveraged oil ETF for the play namely the ProShares Ultra Bloomberg Crude Oil ETF (NYSEARCA:UCO). Investors who want to play short can find the ProShares UltraShort Bloomberg Crude Oil ETF (NYSEARCA:SCO) intriguing.

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