Horizons ETFs issued what essentially amounts to a warning this morning related to its BetaPro Crude Oil 2x Daily Bull ETF (TSX: HOU) and BetaPro Crude Oil -2x Daily Bear ETF (TSX: HOD) due to ongoing market volatility. The ETF operator issued a news release “reminding” investors that the derivative counterparties for these ETF’s are entitled to certain termination rights.
These termination rights essentially enable the derivative counterparty, i.e. the CME Group, to demand that the HOD and HOU ETFs exit certain futures contracts due to the risk that they won’t be able to cover obligations related to the futures contract. Horizons expects these termination rights to be exercised should certain forward contracts that the ETF’s hold sink to price levels blow $10 per barrel. The company also warned that the exposure to oil markets would be removed should the price of a contract hit negative territory.
If these rights were to be exercised, both HOD and HOU would be forced to convert the related contracts to a cash position and effectively remove its exposure to these long dated crude oil futures. This reduction in exposure could occur on any given day based on the volatility seen in the crude oil market, and Horizons anticipates that if such rights are exercised the ETF’s would lose 100% exposure to oil markets.
While the company has not seen the counterparty exercise such termination rights yet, it’s likely that there has been background discussion related to this event, given this mornings news release reminding investors of the risk. The company also warned that as a result of both HOD and HOU not issuing new subscriptions both ETF’s are trading nowhere near net asset value, and that new subscriptions are not expected to be issued until market volatility subsides.
The warning from Horizons follows the announcement that HOU will be conducting a 1 for 20 reverse split at the close of market on April 28, and that both HOU and HOD will be reducing their leverage to 1x versus the intended 2x.
The author has no securities or affiliations related to any organization mentioned. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
14 Responses
These vehicles do not track the price of oil. They track futures on oil. That’s very different. If you want to bet on oil prices going up (or down), this is NOT the way to do it. Just look at a chart of oil prices vs a chart of these ETFs. I’ve not found a vehicle yet that tracks the price of oil. The closest I’ve come is ETFs on oil and gas producers, but then you have to worry about how many of the underlying companies will survive these oil prices. If I had to buy an oil company here, I’d first want to look at which CEO’s and CFO’s are buying their own stocks. Then I’d look at debt maturities and overall debt and ability to service it at $10 oil. Right now, return of capital is more important than return on capital, but that’s important too if you’re planning to hold on longer term.
The price of oil has been steadily and daily going up???
yet each day i see someone putting downward pressure on this vehicle that is supposed to provide leverage upward since that dumb negative price shit. it went further down instead, to like 68 cents on the old pricing, which adjusting 20 to 1 is 6.80? no $13. new pricing (very confusing, but thing is, last 3 days of steady strengthening of oil, the Hod put side stays up instead of dropping dramatically, and Hou keeps languishing, weakening, what gives?
i was thinking to invest in HOU as my first time investing , i don’t know what exactly they meant with posting this article, someone can explain me or advice me ? thank you
Do not !!!! Put money into a leveraged fund
2x 3x or 4x etc
What’s IROC and every one’s best advice?
Ie done well in the past with both HOD and HOU but unsure about it now. Curious on people’s thoughts. Jay seemed to be all bull on this and so was I when HOU dipped below $1 but this news made me unsure.
Is it a good time to invest here?
We dont give financial advice. But I would recommend talking with a licensed professional or doing a great deal of research before doing anything with this company.
Yes buy buy buy. Remortgage and buy NOW!!!
What happened to all the people going to IROC to get their money back? Let me know how that goes Ya’ll.
Who do you mean by ‘all the people’?
Pick the bottom on this bad boy and make a killing!
But doesnt the article say that it might get terminated?
What a mess? Feel awful for those idiots who bought this without knowing what they were getting into.