Oil and Gas Sector Experiencing Massive Downturn

The Direxion Daily S&P Oil & Gas Exp. & Prod. Bull and Bear 3X Shares ETF claims to seek daily investment results, before fees and expenses, of 300%, or 300% of the inverse (or opposite), of the performance of the S&P Oil & Gas Exploration & Production Select Industry Index. In other words, these leveraged ETFs seek a return that is 300% or -300% of the return of their benchmark index for a single day. The funds should not be expected to provide three times positive or negative three times the return of the benchmark’s cumulative return for periods greater than a day.  Direxion claims that the ETF offers daily 3x leveraged exposure to the S&P Oil & Gas Exploration & Production Select Industry Index and provides a Customer the opportunity to:

  • Magnify your outlook by 3x, in either direction
  • Go where there’s opportunity, with bull and bear funds for both sides of the trade
  • Stay agile – with liquidity to trade through rapidly changing markets

This ETF was recently listed in an article on www.investmentnews.com as one of the worst performing ETFs in 2018.  This investment experienced losses of 74.28% in 2018 and of 40.21% in 2017.  While it may not be per se fraudulent or negligent for your investment advisor or Broker to purchase this ETF as part of your portfolio, there is an amplified risk of losses that may occur in your account from having a large portion of your holdings in a particular investment, asset class, or market segment relative to your overall portfolio.  Investment advisors and/or Brokers sometimes heavily concentrate a Customer’s account in a particular area if an individual investment in that same asset class or market segment was previously successful in the Customer’s account.  Investments within the same industry, geographic region or security type tend to be highly correlated, meaning that what happens to one investment is likely to happen to the others.  It is easy to see why a Customer may experience massive losses when there is a downturn when a Customer is over concentrated in a specific industry.

Depending upon your individual risk tolerance and investment objectives, it may be acceptable for your investment advisor to purchase oil and gas stocks as part of your portfolio.  With that said, your investment advisor must ensure that your investment portfolio is sufficiently diverse to avoid taking on significant losses if there is a downturn in the oil and gas industry.  Your investment advisor has a duty to ensure that your account is not over concentrated in a certain industry.

Seth Hill is a Shareholder at Halling and Cayo, a full service law firm in Milwaukee, WI and part of its Securities Litigation team. 

Attorney Hill’s practice focuses on investor’s rights and securities litigation within the FINRA arbitration forum.

Contact him at 414-271-3400 or via e-mail at DSH@hallingcayo.com to see if he can help recover funds.