By Nick Leung, Research Analyst at WisdomTree.
Turnover in WisdomTree’s range of leveraged oil exchange-traded funds hit a record high of $9.9bn in 2016.
Turnover in WisdomTree’s range of leveraged oil exchange-traded funds hit a record high of $10bn in 2016 as investors moved to exploit the dramatic recovery in the energy price.
Figures from Boost’s range of products in 2016 reveals turnover for leveraged long US Crude oil jumped from $3.5bn in 2015 to $9.9bn 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 $26 a barrel at the start of January last year, to finish 2016 at $54.
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.
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.
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 $194m in 2015 to $661m.
As with oil, the majority of trades in gold were focused on the leveraged long side, with $474m invested in leveraged longs versus $187m 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.
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 $54m 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 $103m and $43m respectively, helping take total turnover in Boost’s S&P 500 products to $777m last year. This was a more than ten-fold increase from the $58m 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.