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A TORC Oil & Gas pumpjack stands Granum, Alta., on May 6, 2020.

Todd Korol/Reuters

Robinhood Financial is a U.S.-based discount brokerage that offers commission-free trading through its website and mobile app and has a reputation for attracting speculative investors.

Yet the most popular exchange-traded funds listed among Robinhood’s 100 most-popular investments, as of mid-August, reflect more diverse investors than just risk-loving day-traders. (The top-100 list is based on how many individual investors with the platform hold the investment.)

“Like anything else in markets, you’ve got speculators and longer-term investors, and the [recent] data out of Robinhood kind of proves that,” says Alan Fustey, a portfolio manager with Adaptive ETF in Winnipeg, a division of Bellwether Investment Management Inc.

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Below is a look at those five most popular ETFs, listed from most-to-least popular as of Aug. 14:

Direxion Daily S&P Oil & Gas Explorer and Producer Bull 2X ETF (GUSH)

  • Market capitalization: US$502.2-million
  • MER (management expense ratio): 1.04 per cent
  • Year-to-date (YTD) loss: 97.4 per cent
  • 2019 loss: 52.7 per cent (Data is sourced from Morningstar.com as of Aug. 17)

GUSH is a play on the energy sector that largely reveals the speculative bent of many Robinhood investors. The leveraged ETF seeks to provide 200 per cent of a single day’s performance of the S&P Oil & Gas Exploration & Production Select Industry Index.

“One important consideration to have when using these types of products is (they) are designed to provide only daily exposure,” says Spencer Barnes, associate vice-president of mutual funds and ETF strategy at Raymond James Ltd., based in Toronto. “Why that is really important is that their long-term performance can vary quite significantly from what the underlying index does.”

Consider that, since inception in 2016, US$10,000 invested in GUSH would now be worth about US$4.90. By comparison, the underlying index of U.S. oil companies would be worth more than US$2,850.

GUSH is up about 20 per cent over the past month, possibly pointing to why Robinhood investors are buying.


United States Oil LP ETF (USO)

  • Market cap: US$4.2-billion
  • MER: 0.79 per cent
  • YTD loss: 70 per cent
  • 2019 return: 32.6 per cent

USO is the largest crude-oil commodity fund as well as one of the longest-running ETFs of its kind.

Unlike GUSH, it trades in futures contracts for oil. It’s also not a leveraged product, but that doesn’t mean it’s a buy-and-hold fund either, says Lara Crigger, senior staff writer at ETF.com, based in New Orleans.

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Like most commodity-exposure funds, she says it’s not designed for do-it-yourself investors, so much as it is a tool for professional traders taking shorter-term positions. Ms. Crigger believes amateurs are better off leaving USO and other commodity ETFs alone.

“You might get lucky initially and make money, but that will only make you confident and cocky, and suddenly you’ve lost a lot of money,” she says.

Investors in USO got scorched in April, when prices for front-end (one-month) futures for oil turned negative. As a result, USO restructured its strategy and no longer only trades in front-month futures to avoid a similar outcome. Instead, USO now invests in futures contracts of varying times to maturity, Ms. Crigger notes.

Despite being much more popular among Robinhood investors prior to the spring crash, it remains a favourite ETF, likely because its three-month return has been a robust 37.4 per cent.


ProShares Ultra Bloomberg Crude Oil (UCO)

  • Market cap: US$1.4-billion
  • MER: 0.95 per cent
  • YTD loss: 93.4 per cent
  • 2019 return: 53.8 per cent

Another leveraged oil ETF, UCO aims to provide double the one-day return of traded futures contracts for West Texas Intermediate.

“It holds kind of the same investments as the USO, where it’s picking across the futures (maturity) curve,” Ms. Crigger says.

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The difference is that it provides exposure to the one-day performance of underlying futures contracts.

Like GUSH, it would have erased the capital of long-term investors who mistakenly wanted a buy-and-hold position for the commodity. (A US$10,000 investment since its inception in 2008 would today be worth about US$13.)

Still, she says Robinhood investors may be holding UCO now based on its recent performance – up 10.6 per cent in the past month alone and about 82 per cent in the last three months.


Vanguard S&P 500 ETF (VOO)

  • Market cap: US$159.4-billion
  • MER: 0.03 per cent
  • YTD return: 6 per cent
  • 2019 return: 31.4 per cent

Vanguard’s ETF tracks the performance of the S&P 500 and is largely considered a portfolio staple of many buy-and-hold investors, Mr. Fustey of Adaptive ETF says.

The security “could not be more different” than GUSH and other leveraged ETFs focused on specific sectors, he adds. “You have traditional, broad-based index ETFs like VOO, and then you have people on the other side speculating on specific sectors like oil.”

VOO is also one of the lowest-cost ETFs with an MER of three basis points. The fund may also be a favourite among speculative investors believing the broad, U.S. index has more upside, he adds.

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So far so good: its three-month return is 18.7 per cent.


SPDR S&P 500 ETF (SPY)

  • Market cap: US$299.4-billion
  • MER: 0.095 per cent
  • YTD return: 6.1 per cent
  • 2019 return: 31.2 per cent

The largest ETF by market capitalization in the world, SPY is also one of the oldest. As such, it’s a favourite of many investors, particularly institutional ones, because it has a large options-trading market surrounding it, Mr. Barnes of Raymond James says.

“But for the average investor, there is very little difference between SPY and VOO,” he adds.

Robinhood investors likely prefer VOO for its lower MER, Mr. Barnes says. But over longer periods, their diverging performance “amounts to splitting hairs.”

As further evidence, Mr. Spencer points to their difference in 15-year returns is only four basis points. Consequently, either one “is a great core holding for a portfolio,” he says.

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