Energy ETFs Rally, Highlighting Leverage

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Crude oil spiked to an eight-month high this week, benefiting exchange traded funds more than open- and closed-end funds.

The average energy fund gained 2.8%, excluding inverse funds that sell short energy investments, in the week ending June 11. The best performer, which jumped 10%, was ProShares Ultra DJ-UBS Crude Oil(UCO Quote). The ETF is leveraged 200% to the daily return of the Dow Jones-UBS Crude Oil Sub-Index using futures and swap contracts on crude oil.

While energy demand is only starting to return to the U.S., the rest of the world, especially China, is soaking up the slack. The International Energy Agency on Thursday raised its estimate for global oil demand by 120,000 barrels to a total of 83.3 million barrels a day. Meanwhile, U.S. stockpiles of oil dropped 4.38 million barrels in May. West Texas Intermediate Crude Oil closed at a spot price of $72.68 a barrel, up $3.87 in one week.

Targeting 300% of the daily performance of the Russell 100 Energy Index, Direxion Daily Energy Bull 3X Shares(ERX Quote) took second place, with a pop of 8.8%. Among the companies contributing the most to the rise in the ETF were returns of 18% in Hercules OffShore(HERO Quote), 16% in Quicksilver Resources(KWK Quote) and 14% in Walter Energy(WLT Quote).

The third-best performer, Rydex 2X S&P Select Sector Energy ETF(REA Quote), climbed 8.7%. The fund's largest gainer, El Paso(EP Quote), added 11% on a news of a Brazilian oil and natural gas well discovered in conjunction with Petrobras(PBR Quote). Another holding, Massey Energy(MEE Quote), was up 7.9%, extending the previous week's increase of 11%.

Best-Performing Energy Funds Week Ending June 11 Fund Rating 1 Wk Ttl Return ProShares Ultra DJ-UBS Crude Oil (UCO) U 10.20% Direxion Daily Energy Bull 3X Shares (ERX) U 8.82% Rydex 2X S&P Select Sector Energy ETF (REA) U 8.70% Oil Equiptment UltraSector ProFund (OEPIX) U 7.46% Kayne Anderson MLP Investment Co (KYN) C 7.28% BlackRock Energy and Resources Trust (BGR) C+ 6.42% Claymore/MAC Global Solar Energy Index ETF (TAN) C+ 6.39% ProShares Ultra Oil & Gas (DIG) E- 6.14% Market Vectors - Coal ETF (KOL) C+ 5.49% Winslow Green Growth Fund (WGGFX) E 5.46% Source: Bloomberg & TheStreet.com Ratings

Setting aside the ETFs negatively leveraged to the energy market, two of the worst performers this week track carbon trading. The iPath Global Carbon ETN(GRN Quote) and the AirShares EU Carbon Allowances(ASO Quote), lost 7.1% and 5.2%, respectively.