As Oil Prices Drop, Investors Lose Millions

As oil prices have continued to plummet and commuters across the country have regaled the resulting savings at the pump, investors in oil and gas related stocks, ETFs and master limited partnerships have been shocked by the crushing losses on their brokerage account statements.

With interest rates near all-time lows, some financial advisors with clients seeking income have strayed from the usual safe, reliable treasury bills, high-grade municipal bonds, and the like, instead recommending riskier investments in search of higher yield and more income.  If such investment advisors recommended securities tied to the oil and gas sector, the last few months may have proven disastrous for their clients.

For example, financial advisors have been known to recommend “Master Limited Partnerships” (MLPs), which offer an investor the opportunity by into an oil/natural gas discovery, production and distribution enterprise.  While MLPs offer typically higher rates of income than more traditional investments, investors are frequently not advised by their financial advisor of the significantly higher risks.  Unfortunately, investors who were sold MLPs as safe, income producing investments, may only be learning of these previously hidden risks now that their investment has dropped significantly in value.

MLPs are not the only way to invest in oil and natural gas.  Another way to invest in oil and gas in through “Exchange Traded Funds” (ETFs).  ETFs are typically sold as an alternative to mutual funds that trades like a stock.

Unfortunately, that is not the whole picture.  ETFs can be riskier than traditional mutual funds, and have some features that make them different from stocks.

One classic example is leverage, meaning that the product is structured in a way to amplify gains (and losses).  (You can read more about leveraged ETFs here.)  While more gains may sound good, there is more risk of more losses, which is bad.  For many investors leveraged ETFs are not appropriate.

Investors who have had their portfolio concentrated in leveraged (or even ordinary, non-leveraged) ETFs in the oil and gas sector have probably seen the value of their portfolio drop catastrophically.

For example, the following oil, gas, and energy related ETFs have lost between 30% and 85% of their total value in the last 3 months alone:

  • Direxion Daily Nat Gas Rltd Bull 3X ETF (GASL)
  • VelocityShares 3x Long Crude Oil ETN (UWTI)
  • ProShares Ultra Bloomberg Crude Oil (UCO)
  • Direxion Daily Energy Bull 3X ETF (ERX)
  • First Trust ISE-Revere Natural Gas ETF (FCG)
  • PowerShares S&P SmallCap Energy ETF (PSCE)
  • ProShares Ultra Oil & Gas (DIG)
  • SPDR® S&P Oil & Gas Equipment&Svcs ETF (XES)
  • PowerShares Dynamic Oil & Gas Svcs ETF (PXJ)
  • United States Brent Oil ETF (BNO)
  • Market Vectors® Oil Services ETF (OIH)
  • Market Vectors® Unconvnt Oil & Gas ETF (FRAK)
  • iPath® S&P GSCI® Crude Oil TR ETN (OIL)

To the average investor, losing that much value in such a short amount of time can be shocking and devastating.  When such losses were the result of fraudulent recommendations by a financial advisor, they may be illegal.

It is the right of any and all investors who believe they may have suffered losses as a result of recommendations of their financial advisor to contact our offices to explore their legal rights and options. If you or a family member lost money in exchange traded funds, MLPs or any other oil, natural gas and energy related security, contact the securities fraud lawyers at Malecki Law for a free consultation and case evaluation at (212) 943-1233.

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