The Best Inverse Oil ETF?
Those not living under a rock by now know that oil has been on a wicked slight recently. In the past 27 days, excluding Tuesday, the U.S. Oil Fund (NYSE: USO) has slipped about 15%. Of course that's great news for inverse oil ETFs such as the PowerShares DB Crude Oil Double Short ETN (NYSE: DTO) and the ProShares UltraShort DJ-UBS Crude Oil (NYSE: SCO).
Both of those bad boys are up more than 20% since April 7. Stellar performances to be sure, but does that mean they are the best ETFs with which to short oil with? It's a “yes” or “no” question that can be answered with both “yes” and “no.”
Yes, if you're an active trader, no if you're not. The best way for the conservative investor to participate in oil's downside without the issues that come with inverse ETFs is to embrace the Guggenheim Airline ETF (NYSE: FAA).
No, the Professor hasn't been the biggest fan of FAA in this space, but the ETF is up almost 10.5% since April 7, implying a pretty intimate inverse relationship with USO.
Airline investing for the long-term is still a perilous endeavor. After all, this is a group of companies that have a business model beholden to oil prices and organized labor and one that is addicted to charging for basic services (baggage fees) to scrimp together profits.
Beyond that, art imitates life. Gordon Gekko had his butt handed to him by an airline play and in the real world, Warren Buffett has admitted he was lucky to turn a profit on an old investment in US Air (NYSE: LCC). In other words, airline stocks probably shouldn't be the cornerstone of anyone's portfolio.
That said, neither should DTO or SCO. Try FAA as a short oil play. If another $8-$10 per barrel is shaved off oil, FAA could see the low or mid-40s.
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