WisdomTree is planning to change the indices for 11 oil and gas exchange-traded products (ETPs) following extreme volatility in oil markets earlier this year.
Five currency-hedged and six short and leveraged ETPs, the largest being the $225m WisdomTree WTI Crude Oil 2x Daily Leveraged ETF (LOIL), will see their indices switched to “more stable exposure to front-month futures contracts”.
The proposed changes will see the five currency-hedged ETPs exposed to an equally-weighted basket of three futures contracts, rebalanced monthly, instead of solely the front-month contracts.
Meanwhile, the six short and leveraged ETPs will hold the second or third futures contracts instead of the front-month.
The issuer added the correlated returns between the original and new indices are 97% or higher for all ETPs and in some cases above 99%.
Have investors lost trust in oil ETFs?
Shareholders will vote on the proposals with votes being held in October.
The ETPs affected by the changes are:
WisdomTree WTI Crude Oil 2x Daily Leveraged
The proposals come after a demand shock sent oil prices plummeting into negative territory for the first time in history with West Texas Intermediate (WTI) trading as low as $-37 a barrel on 21 April.
Although oil ETPs had already rolled their futures contracts to June by this point, there was the real possibility negative prices could happen again which would have wiped out investor returns.
In response, ETF issuers and index providers quickly rolled their strategies away from the front-month in order to protect bullish investors that were continuing the pile into oil ETPs.
While this provided a short-term solution, steps have now been taken to re-introduce rules-based indices to the oil market which are not exposed to front-month contracts alone.
How historic market volatility changed oil ETPs forever
The 11 ETPs are not the first index changes WisdomTree has made to its commodities line-up. In August, the WisdomTree WTI Crude Oil ETP (CRUD), Europe’s largest oil ETP, saw its index changed to the Bloomberg WTI Crude Oil Multi-Tenor Excess Return index which tracks the performance of three equally-weighted WTI crude oil futures contracts.
