UBS ETRACS - ProShares Daily 3x Inverse Crude ETN (WTID)

Overview

The ETRACS ProShares Daily 3x Inverse Crude ETN (ticker: WTID) provided 3x leveraged inverse exposure to daily movements of the Bloomberg WTI Crude Oil Subindex, allowing investors to potentially profit from a decline in WTI crude oil prices. It's an ETN, not an ETF, exposing investors to credit risk of the issuer, UBS. It's high risk, and geared toward short-term traders.

Reputation and Reliability

UBS is a large, global financial institution. However, ETNs carry the credit risk of the issuer, meaning investors could lose money if UBS defaults, regardless of the performance of the underlying index. WTID had a history of trading halts and delistings and trading of the ETN was voluntarily suspended in 2020, highlighting a lack of product commitment from the issuer.

Management Expertise

While UBS manages the ETN issuance, the daily resetting of the leverage is algorithm-driven. The expertise primarily lies in structuring and risk management of complex financial products, rather than active oil market analysis.

Goal

To seek daily investment results, before fees and expenses, that correspond to three times (3x) the inverse (-3x) of the daily performance of the Bloomberg WTI Crude Oil Subindex.

Investment Approach and Strategy

Strategy: Tracks the inverse of the Bloomberg WTI Crude Oil Subindex with 3x daily leverage. This means it aims to deliver three times the opposite of the daily percentage change in the index.

Composition The ETN does not hold physical assets. Its performance is linked to the Bloomberg WTI Crude Oil Subindex through financial contracts.

Market Share: Limited, given its niche focus and the availability of other crude oil-related ETNs/ETFs. This ETN has been suspended from creation, substantially reducing its market share.

Total Net Assets (AUM): 0

Key Competitors

• ProShares UltraShort Bloomberg Crude Oil (SCO)
• MicroSectors U.S. Big Oil Index 3X Leveraged ETN (NRGU)

Competitive Landscape

The competitive landscape is dominated by other leveraged and inverse crude oil products. WTID's main disadvantage was its ETN structure (credit risk) and past trading halts, which eroded investor confidence. Competitors like SCO, which is an ETF, provide similar inverse exposure without the issuer risk and are typically more liquid.

Historical Performance: Due to the leveraged nature and daily reset, long-term performance is highly path-dependent and can deviate significantly from -3x the cumulative performance of WTI crude oil. Performance data needs to be analyzed carefully considering the short-term nature of the product.

Benchmark Comparison: Due to the compounding effect of daily leverage, direct comparison with the inverse benchmark is difficult. It should be compared daily. Past performance does not reflect future results.

Expense Ratio: 1.5

Average Trading Volume

Trading volume has been historically volatile and may not be consistently high, particularly after issuance suspensions.

Bid-Ask Spread

The bid-ask spread can be wide, especially during volatile periods, increasing trading costs.

Market Environment Factors

Crude oil price volatility, geopolitical events, supply and demand dynamics, and global economic growth all significantly impact WTID. Changes in market sentiment toward crude oil play a crucial role.

Growth Trajectory

Given the risk profile and past trading halts, WTID does not have a stable growth trajectory. It's more of a short-term trading vehicle, not a long-term investment. Trading of the ETN was voluntarily suspended in 2020.

Competitive Edge

WTID's past advantage was offering a high degree of inverse leverage in a relatively simple product structure. However, its ETN structure, coupled with trading halts, ultimately diminished this advantage. Other ETFs offer similar exposure without the credit risk. Ultimately this ETN was voluntarily suspended in 2020 which eliminates any competitive edge.

Volatility

Extremely high due to the 3x leverage and the inherent volatility of crude oil prices. Daily resets can lead to significant value erosion even if the underlying asset moves in the anticipated direction over longer periods.

Market Risk

Substantial market risk is associated with fluctuations in crude oil prices. Leveraged and inverse products are inherently more prone to large and rapid losses. Credit risk associated with UBS is also a key risk.

Ideal Investor Profile

Sophisticated, short-term traders with a high risk tolerance who actively monitor crude oil markets and understand the complexities of leveraged and inverse products. Not suitable for buy-and-hold investors.

Market Risk

Best suited for active traders looking to make short-term bets on the direction of crude oil prices. Not suitable for long-term investors or passive index followers.

The ETRACS ProShares Daily 3x Inverse Crude ETN (WTID) aimed to provide -3x leveraged exposure to daily movements in crude oil prices. However, the product had significant risks, including credit risk of the issuer (UBS) and the effects of daily compounding, making it unsuitable for long-term investment. Due to trading suspensions and similar products available as ETFs, WTID's value proposition was significantly diminished. The ETN had a voluntary suspension from trading and is not recommended for most investors.

• SCO
• NRGU

Data Sources:

• ProShares Website
• Bloomberg
• Yahoo Finance

Disclaimers:

This analysis is for informational purposes only and does not constitute financial advice. Leveraged and inverse ETFs/ETNs are inherently risky and may not be suitable for all investors. Past performance is not indicative of future results. Investment decisions should be based on individual risk tolerance and financial circumstances.