Oil prices have rapidly tumbled to under $50 a barrel, from well over $100 a barrel, leaving prices at their lowest level since 2009. As a result of the plummet in oil prices, some investors whose portfolios were concentrated in investments whose value is linked to the price of oil or other energy products have lost significant sums. Such investments may include private placements, stocks, and ETFs. On the private placement side alone the Securities Exchange Commission (SEC), has stated that since 2008, approximately 4,000 oil and gas private placements have attempted to raise nearly $122 billion in investor capital. However, research has shown that some of these oil and gas private placements pose enormous risks and, a significant majority of the oil and gas funds offered by some sponsors have lost money (even before the recent drop in oil prices).
In addition to the inherent risks of such investments, some investors’ portfolios may be over-concentrated in oil and gas stocks or ETFs. Some of these ETFs may be leveraged or non-traditional ETFs. These types of funds will tend to rise or fall in value even more rapidly than the price of oil and gas, due to internal leverage, or the borrowing of money by the funds to increase their exposure energy prices.