The Degens are Winning in Oil ETFs
The attraction to make short-term market bets is real. When you think what everyone knows is wrong, it’s tempting to place a bet. And while Kalshi and Polymarket may be better venues for “someone is wrong on the internet” proof-trading, ETFs offer clean, efficient ways to lose your money too.
Or maybe — maybe — make some.
On a recent episode of ETF Zoo, Bloomberg’s Eric Balchunas made the point that some speculators lately had been getting these market-timing calls right. He later ran the numbers on ProShares UltraPro QQQ, the 3x leveraged Nasdaq-100 ETF.
This toe-dip into matching flows with performance got me thinking about “the other big trade” of the last year or so that’s not AI: Energy. That’s where all the headlines about insider trading have been, so taking the cue from Eric, I had to figure out: have ETF investors been playing the energy trade this well?
Dissecting the energy trade
Betting on energy is the least secret, least insider trade in the world right now—unless you have access to the Oval, like some traders apparently do. There should be no edge in it. Short-term trading here is simply a bet that you know something the most important commodity market in the world doesn’t know (or, you have better hunch.) Historically, this is a bad idea. That was my prior: disaster.
I split the analysis into two windows: Election Day through the start of the Iran war, Nov. 5, 2024 to March 6, 2026; and the war period, March 6 through July 24. Plenty of investors were already bullish on energy because of the change in administration. Once the war began, the trade became more complicated.
Two Regimes, Different Winners
By my count—it’ll change tomorrow—there are 128 U.S.-listed energy ETFs and ETNs holding about $109 billion (and there’s been huge product churn, with at least 20 closures in the last year or two). That’s intentionally broader than the “Energy” box in a conventional screener: it includes traditional energy equities and commodity funds, but also clean energy, climate, nuclear, leveraged and inverse products. They sort into six buckets:
Two things jumped out to me. First, cheap unlevered equity is where the money is: $68.7 billion of the $109.2 billion, with about $38 Billion of it just in the Energy Select Sector SPDR, XLE, the big name everyone knows. The geared ETFs that have people like me hand-wringing? They’re about $2.6 billion combined, a rounding error against XLE alone.
And as for how these buckets performed, and how they gathered assets? totally different.
From the election through the beginning of the war, the real raw-perfomance story was nuclear. Uranium and related ETFs returned an (asset-weighted across the group) 66.7%, beating the S&P 500 by 48%, while pulling in $5.67 billion. Total assets in the bucket went from $6.0 billion to $15.6 billion, driven largely by the AI-power trade before Iran. Then the war started and nuclear became the worst performer in the complex, down 18.3%.
It’s worth noting what didn’t happen, too. In the 16 months before the war, crude and energy equities were about tied: 28.4% versus 30.0%. After March 6, the commodity and the equities diverged: 15.1% versus 6.3%.
The story for the levered folks is obvious: inverse energy lost 53.8% from the election to the war, and another 10.2% afterward. The bulls are harder to pin down because the product lineup churned so much. Only two of the 20 leveraged-long funds have clean data back to Election Day, so there’s no honest bucket number to quote for that first window. Those two, GUSH and ERX, returned 28.1% and 44.7% against 30.0% for the unleveraged equities: a lot more risk for roughly the same ballpark of returns. Since the war, the leveraged-long bucket is up 9.4%.
But none of this tells us how any actual investor or speculator did. For that, timing matters.
Money-weighting
Fund returns tell you how a strategy did, not how investors did, because investors don’t all arrive at once. Weight the return by when the money showed up—the money-weighted return, or what Morningstar calls “investor return” in its excellent “Mind the Gap” studies—and you can see whether timing added value or destroyed it. (Yes, yes, there are lots of reasons why these kinds of analyses are imperfect, and every year pundits make a ritual of complaining about the Dalbar report, the big-kahuna of money-weight analysis, but I still find it useful, despite valid criticism).
Long story short: crude traders are on fire.
This chart looks at the actual biggest money makers in the broad collection of energy ETFs since the bombs started flying. The biggest gross winner is XLE — also by far the largest ETF — where investors have made about 2.3B in profits. From a timing perspective, however, investors have done a lot worse than that: mistiming entries and exits “cost” investors about 2.98% of their potential 6.4% return
But look at USO! USO is up 25% since the war started, and actual traders have doubled that performance. The average dollar in USO earned 50.1% against a fund return of 24.8%—a 25.2-point edge and $704 million in investor profit. At the other end, nearly every uranium fund shows investors absorbing slightly more of the drawdown than the fund itself.
How unusual is this? Not as unusual as I expected. Look at the window from the election to the start of the war:
Again, USO returned 45.9%, but the average dollar earned 60.1%, a 14.2-point timing edge. But just in oil: investors couldn’t keep up was the raging-hot nuclear trade. NLR investors lagged their fund’s 63.2% return by 9.2 points.
I was honestly shocked. For almost every major reversal, the flow pattern in USO is … smart? Money consistently buying dips and selling tops, cycle after cycle:
And what about the leveraged plays? Traders in UCO – the levered oil ETN – did even better: the fund was up 41%, but hte average dollar made nearly 80% in just 4 and a half months. And they were uniquely correct, as the inverse fund, SCO, saw the opposite happen: the fund is down 44%, the faverage investor got slaughtered – 97% down.
So, are the degens smart?
Yes. Oil traders — specifically the big-hands moving money in and out of USO — have clearly had the inside track since the election. And yet, the irony of this apparent trading prowess is that since the war started the long side of the energy complex has taken in essentially no new money. My hand-picked pile of funds here saw net flows of about half a billion dollars in four and a half months (in a year where we already have nearly $1 Trillion new flows).
ETFs are used by every kind of investor, from the most staid long term allocators to the most Red-Bull-addled day trader. There is no “ETF Investor” to model for sentiment. There are just “Investors.” And since ETFs now cover everything, sometimes, they’re going to catch the smart folks with … unique … information (or better hunches) too.
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P.S.: in working up this article, I spent a lot of time with our new ETF AI tool for data analysis. Most of the data for this came through those AI conversations (which I of course cross checked against other resources. Trust but verify!). Give it a spin!