Nickel Investors Wiped Out Again as WisdomTree Shuts Second Fund

(Bloomberg) — Add another leveraged nickel trade to the long list of wipeouts in the historic turmoil rocking the metal.

Most Read from Bloomberg

Just two weeks after its bearish sibling was shuttered, the WisdomTree Nickel 3x Daily Leveraged exchange-traded commodity (ticker 3NIL) is being compulsorily redeemed, issuer WisdomTree Investments said in a statement dated March 21.

The London and Milan-listed product, which used swaps to treble the return of nickel futures, had at one point surged more than 600% this month before the London Metal Exchange controversially halted trading in the metal. When the market eventually reopened March 16, nickel fell by the most allowed for four days in a row — delivering a fatal blow to 3NIL.

“The limitation on trading imposed on the nickel market by the LME after 7 March 2022 led to severe disruptions in nickel trading and pricing, which prevented the product from being priced and resetting its leverage at the end of each day as usual,” WisdomTree said in the statement.

The firm applied to the LSE and Borsa Italiana to immediately suspend and delist 3NIL. The ETC — a type of exchange-traded product that invests in commodities, often via futures contracts — had about 22 million euros ($24 million) of assets, according to data compiled by Bloomberg.

A spokesperson for WisdomTree referred Bloomberg News to the March 21 statement.

While 3NIL was relatively small, it was among a breed of controversial leveraged products that offer almost any investor easy access to often-complex strategies teeming with risk. The nickel ETC also gave them entry to a relatively specialized market, typically the preserve of sophisticated traders and qualified firms.

Nickel had soared earlier in March amid concern over supplies from Russia and a subsequent squeeze on short positions. That killed off the WisdomTree Nickel 3x Daily Short ETC (3NIS), which used derivatives to deliver three times the inverse of the commodity.

Read more: The 18 Minutes of Trading Chaos That Broke the Nickel Market

As for its bullish counterpart, 3NIL’s reset mechanisms had to be measured from March 7, WisdownTree said. The subsequent plunge in nickel meant the product’s index fell almost 35% — spurring a 100% wipeout in the triple-leveraged vehicle.

“The Redemption Amount of the WisdomTree Nickel 3x Daily Leveraged securities has been calculated as zero so investors should not expect to get paid for the securities they hold,” the statement said.

Most Read from Bloomberg Businessweek

©2022 Bloomberg L.P.