Sometimes it’s all about the product. Sometimes it’s all about timing. The Best New ETF of 2008 has both going for it – it’s the right product at the right time, and it also has the right leverage. PowerShares DB Crude Oil Double Short ETN (DTO) made its debut on June 16, 2008. Crude oil was trading around $135 that day, just short of its lifetime high of $145, which came a few weeks later on July 3.
DTO didn’t generate much press 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 has gained more than +500% since its introduction just a little over six months ago. That’s right – more than +500%. Anyone that waited until early July to purchase DTO is now sitting on gains in excess of +600%.
Leveraged and inverse leveraged ETFs and mutual funds have garnered a great deal of negative press lately because the long-term performance does not equal 2x (or -2x) the performance of the underlying index. The peculiarities involved with compounding returns of funds that reset their leverage daily have been widely discussed since 1993 with the introduction of Rydex Nova (RYNVX), the first leveraged mutual fund.
Many analysts and market commentators continue to treat this phenomena as new news, most likely the result of them failing to understand how it works before making a purchase. Perhaps one of them will write a story about the failure of DTO. After all, using the same logic, a 2x inverse oil fund should have gained +150%, since oil declined by -75%. With DTO gaining +600%, the press may label it a failure also – for gaining too much.
You may not have ever heard of this fund. In fact, for some strange reason, the PowerShares website has no information regarding DTO or any of the PowerShares ETN products. Entering either DTO or ETN into the site search button produces zilch. There is a page titled PowerShares DB funds containing info on 10 funds, but there is no mention of any of the 19 PowerShares DB ETN products. To spare you from the same aggravation of trying to locate more information, here are the links to general information on the Deutsche Bank website and to the prospectus.
With a gain in excess of +500% since its launch in June, DTO easily earns our 2008 Edgy Award for Best New ETF.
(12/31/08 update: A representative from PowerShares informed me today that their ETN products are located on a separate website www.PowerSharesETNs.com.)