Election Opportunity With These Oil And Gas ETFs

This year's presidential election cycle has been interesting, to put things mildly, in many regards. That is especially true for investors that have seen healthcare investments, at various points during this year, take a beating on the back of rhetoric from Democratic nominee Hillary Clinton.

Likewise, many market observers believe all asset classes, except gold, will fall out of bed if Republican challenger Donald Trump pulls off an upset in November. What makes the competition between Clinton and Trump unique is that the energy sector has not spent much time in the limelight compared to previous elections.

That does not diminish the potential post-election potency of the Direxion Daily S&P Oil & Gas Exp. & Prod. Bull 3X Shares GUSH and its bearish counterpart, the Direxion Daily S&P Oil & Gas Exp. & Prod. Bear 3X Shares DRIP.

GUSH attempts to deliver triple the daily returns of the S&P Oil & Gas Exploration & Production Select Industry Index while DRIP's objective is to deliver triple the daily inverse returns of that benchmark. Bottom line: DRIP and GUSH are volatile instruments and serve as reminders that leveraged ETFs are short-term instruments.

The ETFs' index, as of the end of the second quarter “was comprised of 60 stocks concentrated in the energy and oil and gas sectors. As of June 30, 2016, the companies included in the Index have a median market capitalization of $4.45 billion and an average market capitalization of $20.40 billion,” according to Direxion. 

In terms of which candidate GUSH would prefer, a case can be made for Trump. Clinton has levied harsh rhetoric at some parts of the fossil fuels industry, par for the course with many Democrats, though it cannot be forgotten that the energy sector has been decent since President Obama came to office. Still, conventional wisdom sides with the energy sector when a Republican occupies the White House.

“In terms of energy-related stocks, the Republican Platform states that 'We remain committed to aggressively expanding trade opportunities and opening new markets for American energy through multilateral and bilateral agreements, whether current, pending, or negotiated in the future.' Any policies that support energy production may be a boon to oil & gas concerns,” said Direxion in a recent note. 

After the election, GUSH could use a catalyst in the form of significant production cuts from major oil-producing countries, such as Russia and the Organization of Petroleum Exporting Countries.