IMPORTANT: Investment involves risks. Investment value may rise or fall. Past performance information presented is not indicative of future performance. Investors should refer to the Prospectus and the Product Key Facts Statement for further details, including product features and risk factors. Investors should not base on this website alone to make investment decisions.

CSOP WTI Crude Oil Futures Daily (-1x) Inverse Product (the “Product”) is a sub-fund of CSOP Leveraged and Inverse Series II, an umbrella unit trust established under Hong Kong law. Units of the Product (the “Units”) are traded in HKD on The Stock Exchange of Hong Kong Limited (the “SEHK”) like stocks. It is a futures and swap based product with an objective to provide investment results that, before fees and expenses, closely correspond to the inverse (-1x) of the Daily performance of Solactive WTI 1-Day Rolling Futures Index (the “Index”). The Index consists of only WTI Futures Contracts whose price movements may deviate significantly from the WTI crude oil spot price. The Product does not seek to deliver an inverse return of WTI crude oil spot price. It is denominated in USD. Creations and redemptions are in USD only.
  • The Product is a derivative product and is not suitable for all investors. There is no guarantee of the repayment of principal. Therefore, your investment in the Product may suffer substantial or total losses.
  • High volatility risk: Crude oil prices are highly volatile and may fluctuate widely and may be affected by numerous events or factors such as crude oil production and sale, complex interaction of supply and demand of crude oil, weather, crude oil inventory level, pandemic like Covid-19, war, speculator’s activities, Organization of the petroleum exporting countries’ behaviour and control, economic activity of significant crude oil use country and other financial market factors. Under extreme circumstances, the oil price may drop to zero or negative value within a short period of time. For the purpose of illustration, during the period of negative oil price in late April 2020, the Product would have achieved a positive performance (compared to the NAV of the end of last trading day). Please refer to the Prospectus for further information.
  • Single commodity/concentration risk: As the exposure of the Product is concentrated in the crude oil market, it is more susceptible to the effects of crude oil price volatility than more diversified funds.
  • The Product is a futures and swap-based product investing directly in WTI Futures Contracts. It is one of the first leveraged and inverse products tracking a crude oil futures index. The novelty of such a product makes the Product riskier than traditional exchange traded funds investing in equity securities or non-leveraged / inverse futures or swaps funds.
  • The Product tracks the inverse performance of the Index on a Daily basis. Where the performance of the Index is positive, it could have a negative effect on the performance of the Product. Unitholders could, in certain circumstances including a bull market, face minimal or no returns, or may even suffer a complete loss, on such investments.
  • The Product is not intended for holding longer than one day as the performance of the Product over a period longer than one day will very likely differ in amount and possibly direction from the inverse performance of the Index over that same period (e.g. the loss may be more than -1 time the increase in the Index).
  • The effect of compounding becomes more pronounced on the Product’s performance as the Index experiences volatility. With higher Index volatility, the deviation of the Product’s performance from the inverse performance of the Index will increase, and the performance of the Product will generally be adversely affected.
  • As a result of Daily rebalancing, the Index’s volatility and the effects of compounding of each day’s return over time, it is even possible that the Product will lose money over time while the Index’s performance falls or is flat.
  • Investing in the Product is different from taking a short position. Because of rebalancing, the return profile of the Product is not the same as that of a short position. In a volatile market with frequent directional swings, the performance of the Product may deviate from a short position.
  • Investing in the Product is different from taking a short position. Because of rebalancing, the return profile of the Product is not the same as that of a short position. In a volatile market with frequent directional swings, the performance of the Product may deviate from a short position.
  • There is no assurance that the Product can rebalance its portfolio on a Daily basis to achieve its investment objective. Market disruption, regulatory restrictions or extreme market volatility may adversely affect the Product’s ability to rebalance its portfolio.
  • The rebalancing activities of the Product typically take place near the end of trading of the underlying futures market to minimise tracking difference. As a result, the Product may be more exposed to the market conditions during a shorter interval and may be more subject to liquidity risk.
  • The Product is normally rebalanced at the end of trading of the WTI Futures Contracts on a Business Day. As such, return for investors that invest for period less than a full trading day will generally be greater than or less than the inverse investment exposure to the Index, depending upon the movement of the Index from the end of one trading day until the time of purchase.
  • Daily rebalancing of Product’s holdings causes a higher level of portfolio transactions than compared to the conventional exchange traded funds. High levels of transactions increase brokerage and other transaction costs.
  • Investment in futures contracts involves specific risks such as high volatility, leverage, rollover and margin risks.
  • A “roll” occurs when an existing WTI Futures Contract is about to expire and is replaced with another WTI Futures Contract with a later expiration date (except on a “Triggered Roll Start Day” on which the roll will start, as explained under “Index” above). The value of the Product’s portfolio (and so the NAV per Unit) may be adversely affected by the cost of rolling positions forward as the WTI Futures Contracts approach expiry as the market for these WTI Futures Contracts is in backwardation.
  • An extremely high degree of leverage is typical of a futures trading account. As a result, a relatively small price movement in a WTI Futures Contract may result in a proportionally high impact and substantial losses to the Product, having a material adverse effect on the NAV. A futures transaction may result in significant losses in excess of the amount invested.
  • Mandatory measures imposed by relevant parties’ risk: Regarding the Product’s futures positions, relevant parties (such as clearing brokers, execution brokers, participating dealers and stock exchanges) may impose certain mandatory measures for risk management purpose under extreme market circumstances. These measures may include limiting the size and number of the Product’s futures positions and/or mandatory liquidation of part or all of the Product’s futures positions without advance notice to the Manager. In response to such mandatory measures, the Manager may have to take corresponding actions in the best interest of the Product’s Unitholders and in accordance with the Product’s constitutive documents, including suspension of creation of the Product’s units and/or secondary market trading, implementing alternative investment and/or hedging strategies and termination of the Product. These corresponding actions may have an adverse impact on the operation, secondary market trading, index-tracking ability and the NAV of the Product. While the Manager will endeavour to provide advance notice to investors regarding these actions to the extent possible, such advance notice may not be possible in some circumstances.
  • If the price of the WTI Futures Contracts included in the Product’s portfolio hit certain price limits, depending on the time of the day and the limit being reached, the trading of the WTI Futures Contracts may be limited within the set price limits, suspended for a short period of time, or suspended for the remainder of the trading day. This may affect the Product’s tracking of the inverse of the Daily performance of the Index, and, if a trading halt takes place near the end of a trading day, may result in imperfect Daily rebalancing.
  • The position limit of WTI Futures Contracts is 6,000 contracts for “initial spot-month” limit for contracts that will expire in the current month at the close of trading 3 business days prior to last trading day of the contract (5,000 at the close of trading 2 business days prior to last trading day of the contract; 4,000 at the close of trading 1 business day prior to last trading day of the contract). Accordingly, if the position held or controlled by the Manager reaches the relevant position limit or if the NAV of the Product grows significantly, the above restriction may prevent creations of Units due to the inability of the Product to acquire further WTI Futures Contracts. This may cause a divergence between the trading price of a Unit on the SEHK and the NAV per Unit. The investment exposure could also deviate from the target exposure which adds tracking error to the Product. The position limit may have adverse impact to the Product and may cause substantial loss to the Product.
  • As the Index is based upon active WTI Futures Contracts but not on physical WTI crude oil, the performance of the Index may substantially differ from the current market or spot price performance of WTI crude oil. Accordingly, the Product may underperform the -1x inverse Daily performance of the spot price of WTI crude oil.
  • The Manager seeks to mitigate the counterparty risks by fully collateralising all counterparty exposures. There is a risk that the value of the collateral may be substantially lower than the amount secured and so the Product may suffer significant losses. Any loss would result in a reduction in the NAV of the Product and impair the ability of the Product to achieve its investment objective.
  • The Product may suffer significant losses if the counterparty fails to perform its obligations under the swap. The value of the collateral assets may be affected by market events and may diverge substantially from the inverse performance of the Index, which may cause the Product's exposure to the swap counterparty to be under-collateralised and therefore result in significant losses.
  • The Product will bear the swap fees, which are subject to the discussion and consensus between the Manager and the Swap Counterparty based on the actual market circumstances on a case-by-case basis. The current swap fees are a best estimate only and may deviate from the actual market conditions. In extreme market conditions and exceptional circumstances, the Swap Counterparty’s costs of financing the underlying hedge may increase significantly and in return increase the swap fees.
  • Payment of distributions out of capital or effectively out of capital amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment and may result in an immediate reduction in the NAV per Unit.
  • The Product is not “actively managed” and under normal market circumstances, the Manager will not adopt any temporary defensive position when the Index moves in an unfavourable direction. In such circumstances, Units of the Product will also decrease in value. Under extreme market circumstances, the Manager will adopt temporary defensive position for protection of the Product.
  • The trading price of the Units on the SEHK is driven by market factors such as the demand and supply of the Units. Units may trade at a substantial premium or discount to the NAV.
  • As investors will pay certain charges (e.g. trading fees and brokerage fees) to buy or sell Units on the SEHK, investors may pay more than the NAV per Unit when buying Units on the SEHK, and may receive less than the NAV per Unit when selling Units on the SEHK.
  • The NYMEX and the SEHK have different trading hours. Market participants can trade WTI Futures Contracts on CME Globex from Sunday to Friday 5:00 p.m. to 4:00 p.m. (Chicago Time) with a 60-minute break each day beginning at 4:00 p.m. (Chicago time). As the NYMEX may be open when Units in the Product are not traded and priced on SEHK, the value of the WTI Futures Contracts in the Product’s portfolio may change at times when investors will not be able to purchase or sell the Product’s Units. Difference in trading times between the NYMEX and the SEHK may increase the level of premium/discount of the Unit price to its Net Asset Value.
  • Although the Manager will use its best endeavours to put in place arrangements so that at least one market maker will maintain a market for the Units and gives not less than three months’ notice prior to termination of the market making arrangement, liquidity in the market for the Units may be adversely affected if there is only one market maker for the Units. There is also no guarantee that any market making activity will be effective.
  • The Product may be subject to tracking error risk, which is the risk that its performance may not track that of the Daily inverse performance of the Index exactly. This tracking error may result from the investment strategy used, high portfolio turnover, liquidity of the market and fees and expenses and the correlation between the performance of the Product and the -1x inverse Daily performance of the Index may be reduced. The Manager will monitor and seek to manage such risk in minimising tracking error. There can be no assurance of exact or identical replication of the inverse performance of the Index at any time, including an intra-day basis.
  • Prices of the Product may be more volatile than conventional ETFs because of the daily rebalancing activities.
  • The Product may be terminated early under certain circumstances, for example, where there is no market maker, the Index is no longer available for benchmarking or if the size of the Product falls below USD10 million. Investors may not be able to recover their investments and suffer a loss when the Product is terminated.
  • Investors should note that all Units will receive distributions in the Base Currency (USD) only. In the event that the relevant Unitholder has no USD account, the Unitholder may have to bear the fees and charges associated with the conversion of such distribution from USD to HKD or any other currency. The Unitholder may also have to bear bank or financial institution fees and charges associated with the handling of the distribution payment. Unitholders are advised to check with their brokers regarding arrangements for distributions.


Please note that the above listed investment risks are not exhaustive and investors should read the Prospectus and the Product Key Facts Statement in detail before making any investment decision.

Product Name
CSOP WTI Crude Oil Futures Daily (-1x)
Inverse Product
Fund Manager
CSOP Asset Management Limited
Stock Code
7345
Listing Date
1 December 2021
Exchange
Hong Kong Stock Exchange - Main Board
Base Currency
USD
Trading Currency
HKD
Trading Lot Size
100 Units
Minimum Investment
~ HKD 780
Inception Price per Share (Approx.)
~ HKD7.81
Management Fee
1.60%




1 Estimated data for reference only
Data as of 1st December 2021







What is CSOP WTI Crude Oil Futures Daily (-1x) Inverse Product?



A futures and swaps based product with an objective to provide investment results that, before fees and expenses, closely correspond to the inverse (-1x) of the Daily performance of Solactive WTI 1-Day Rolling Futures Index (the “Index”).


NAV2*=
No more than 20% NAV will be used as Initial Amount by way of cash to acquire the Swaps
+
No more than 20% NAV will be used as margin to acquire the active WTI Futures traded on the New York Mercantile Exchange (NYMEX) (“WTI Futures Contracts”)
+
Not less than 60% USD and other USD denominated investment products under normal circumstances

2 Source: Bloomberg, CSOP research
* Please note that under exceptional circumstances (e.g. increased margin requirement by the exchange or increased Initial Amount requirement by the Swap Counterparty in extreme market turbulence), the margin requirement or the Initial Amount requirement may increase substantially. Please refer to the Product’s Prospectus for details






1. Portfolio Enrichment and Diversification with Convenient and Efficient Investment



Simple and straightforward investment

Invest in WTI crude as simply as trading stocks in Asian time zones.

Low investment threshold

One board lot only costs no more than 1,000 HKD.

+
Portfolio diversification

WTI crude has a low correlation with other assets (e.g. equities and gold). Adding crude oil to your portfolio could spread the overall risk.

Hedge against crude oil volatility

Crude oil prices are highly volatile. In the ever-changing market environment, holding contrarian products can effectively hedge risk.

CSOP WTI Crude Oil Futures
Daily (-1x) Inverse Product
(7345.HK)




2. Oil is One of the Most Volatile Assets

Given the changes brought by COVID-19, escalating geopolitical disputes and carbon neutrality goals, oil prices are now facing unprecedented uncertainties than ever before.




Trading Opportunities amid Volatility

US WTI Crude Oil Futures Price in USD per barrel

Source: Bloomberg, CSOP research





The Post-pandemic Turmoil

WTI Crude Oil Futures Price in USD per barrel

Source: Bloomberg, Reuters, CSOP research





3. Global Carbon Neutrality Goal Challenges Oil’s Dominant Energy Position




New Energy Era is Emerging

Renewables and Low-carbon in power generation


Electric vehicles are more widely used globally than before, and 2021 global electric vehicle sales are estimated to reach 6.4 million USD with a year-on-year growth rate of 98%

Source: www.ev-volumes.com, Thunder Said Energy, World’s Top Exports, CSOP research







When investing in the CSOP WTI Crude Oil Futures Daily (-1x) Inverse Product, investors should be aware of the risks below.



1. Difference between oil spot price, future prices and Solactive WTI 1-Day Rolling Futures Index

  • The oil spot price is the current price of oil for immediate purchase and delivery, which is not practical for oil investment.
  • Oil futures price is the cost of oil that will be delivered at a future point, which is determined on oil spot price, plus the cost of carry during the interim before delivery. As the futures price will converge with spot price at the delivery date, there might be extreme cases in which the futures price plummets into negative. As there is no physical delivery, futures contracts are also the common practices for oil investment.
  • The Solactive WTI 1-Day Rolling Futures Index tracks the performance of the WTI Futures Contracts prices with certain rolling strategy and the futures rolling will be completed before delivery date. Though the futures rolling will incur a curtain amount of rolling costs, the extreme situation of future negative prices will not happen.
  • WTI Futures price = WTI oil spot price + cost of carry
  • Solactive WTI 1-Day Rolling Futures Index = WTI Futures price + futures roll strategy
  • Solactive WTI 1-Day Rolling Futures Index can reflect the WTI oil spot price movement but is not a perfect replication of oil spot price.


2. Compounding risk

Compounding risk indicates the Product’s performance may not track inverse (-1x) Index return over a period greater than 1 Business Day.



Scenario 1: Upward trending market
In a continuous upward trend, where the Index rises steadily for more than 1 Business Day, the Product’s accumulated loss will be less than -1x the accumulative Index gain. As illustrated in the scenario below, where an investor has invested in the Product on day 0 and the Index grows by 10% daily for 4 Business Days, by day 4 the Product would have an accumulated loss of 34%, compared with a 46% loss which is -1x the accumulative Index return.
Index daily return Index level Index accumulative return Inverse product Daily return Inverse product NAV Inverse product accumulative return -1x of Index accumulative return Difference
Day 0 100.00 100.00
Day 1 10% 110.00 10% -10% 90.00 -10% -10% 0%
Day 2 10% 121.00 21% -10% 81.00 -19% -21% 2%
Day 3 10% 133.10 33% -10% 72.90 -27% -33% 6%
Day 4 10% 146.41 46% -10% 65.61 -34% -46% 12%

The chart below further illustrates the difference between (i) the Product’s performance; (ii) -1x the accumulative Index return and (iii) accumulative Index return, in a continuous upward market trend over a period greater than 1 Business Day.



Scenario 2: Downward trending market
In a continuous downward trend, where the Index falls steadily for more than 1 Business Day, the Product’s accumulated gains will be greater than -1x the accumulative Index return. As illustrated in the scenario below, where an investor has invested in the Product on day 0 and the Index falls by 10% daily for 4 Business Days, by day 4 the Product would have an accumulated gain of 46%, compared with a 34% gain which is -1x the accumulative Index return.
Index daily return Index level Index accumulative return Inverse product Daily return Inverse product NAV Inverse product accumulative return -1x of Index accumulative return Difference
Day 0 100.00 100.00
Day 1 -10% 90.00 -10% 10% 110.00 10% 10% 0%
Day 2 -10% 81.00 -19% 10% 121.00 21% 19% 2%
Day 3 -10% 72.90 -27% 10% 133.10 33% 27% 6%
Day 4 -10% 65.61 -34% 10% 146.41 46% 34% 12%

The chart below further illustrates the difference between (i) the Product’s performance; (ii) -1x the accumulative Index return and (iii) accumulative Index return, in a continuous downward market trend over a period greater than 1 Business Day.



Scenario 3: Volatile market
In a volatile downward trend, where the Index generally moves downward over a period longer than 1 Business Day but with daily volatility, the Product’s performance may be adversely affected in that the Product’s performance may fall short of -1x the accumulative Index return. As illustrated in the scenario below, where the Index falls by 7% over 5 Business Days but with daily volatility, the Product would have an accumulated gain of 2%, compared with a 7% gain which is -1x the accumulative Index return.
Index daily return Index level Index accumulative return Inverse product Daily return Inverse product NAV Inverse product accumulative return -1x of Index accumulative return Difference
Day 0 100.00 100.00
Day 1 10% 110.00 10% -10% 90.00 -10% -10% 0%
Day 2 -10% 99.00 -1% 10% 99.00 -1% 1% -2%
Day 3 10% 108.90 9% -10% 89.10 -11% -9% -2%
Day 4 -15% 92.57 -7% 15% 102.47 2% 7% -5%

The chart below further illustrates the difference between (i) the Product’s performance; (ii) -1x the accumulative Index return and (iii) accumulative Index return, in a volatile downward market trend over a period greater than 1 Business Day.



As illustrated in the graphs and the tables, the accumulative performance of the Product is not equal to inverse the accumulative performance of the Index over a period longer than 1 Business Day.

Source: CSOP research