During these days has aroused great interest in the oil ETFs, seeing its price below $ 40 compared to almost $ 150 that came to see. Raw materials there are out there, and when we return to the path of growth 'll meet again price increases.
An ETF is an ETF, but some people mistakenly confuse ETFs and TNCs, and their difference is very important. Specifically discuss the two most popular products leveraged on oil: PowerShares DB Crude Oil Double Long ETN (DXO) and Ultra DJ-AIG Crude Oil ProShares ETF (UCO) .
Both products promise us a twice daily return of the underlying variation, only the first is done through the Commodity Index-Oil of Deutsche Bank, formed for a given basket of futures contracts, and the second doubles the daily performance of the Dow Jones Crude Oil Sub-Index. But the biggest difference between the two is that the first of them is not an ETF but a TNC, and the second one it is an ETF. How does this affect us? Therefore, that if you buy an ETF you are buying an investment fund contributions, with independent legal personality, while TNCs in what we are buying are some notes issued by a third, and in case of bankruptcy of this, we could lose our investment . Moreover, even a lowering of the rating of the issuer of the Notes may affect the price of the ETN.
I focused the explanation in long and leveraged products (which are those that are "fashionable"), but there are usually four products for every marketer, two for long positions and two for short positions, being in two leveraged one x2. Mention that the four products PowerShares (DXO, OLO, SZO, DTO) are TNCs and ProShare are ETFs. PowerShares also offers unlevered long BOD, and that it is ETF.
The management fee for these products is 0.95% per annum in the case of ProShares, 0.75% per annum in the four TNCs from Powershares and 0.5% for the PowerShares ETF BOD.
But what we are really buying when you buy, for example, UCO? We are buying oil futures on a short maturity, but not immediate. In particular portfolio now consists of CLH9, the future of March. So it is with most oil ETFs have nearly all maturities coming future. Consider how different maturities traded:
- CLH09 (March 09) $ 51.99
- CLJ09 (April 09) $ 54.11
- CLK09 (May 09) $ 55.55
- CLH10 (March 1910) $ 64.17
- CLH11 (March 11) $ 69.45
Suppose now buy an ETF for a long operation term because we believe that within a year the oil will be $ 64. What would win if the current contango oil and actually is $ 64 within a year? Not win anything, as being the future in a contango situation like the present, our ETF would have to pay the future of each maturity more expensive every time you rollover. This issue is very important for long-term operations, as we think that if oil prices rise, our ETF rises, and is not necessarily the case. Yes it is short term but not long.
there an ETF that is the exception to almost everyone else. This is the unlevered USL and it has a portfolio of futures with maturities over the next 12 months. Thus not every rollover affects, and if the situation is accentuated contango will benefit, but will be affected if the contango decreases, which is what is happening these days, because today the USL has purchased maturities throughout the year.
The contango situation is not as unusual as some think, not necessarily a market failure. It is logical in a situation of market saturation that future delivery is more expensive. It's not just because the market believes that future price will be higher, in fact sometimes that is not the case. What happens is that if the market is so busy it is difficult to find storage for overproduction, and that has a cost. Take advantage of the situation some oil companies, which store oil futures sold today and the chances of losing are zero (if the stock is insured).
Other products themselves would buy oil futures, but with the need to purchase a minimum of 500 barrels to 1000 barrels minis or regular, rollover and discomfort for long-term positions, and options.
oil stocks dismiss because although the benefit of oil rises, usually do not rise to the same extent that it, and because I bearish in equities.
Yes, I know that I miss CFDs, but I hate for anything beyond pure speculation in the very short term, what I have when I buy a CFD? I do not know. In the other products do not know.
Finally a warning: do not forget that leveraged ETFs are leveraged. Seem obvious, but just looks better with an example. Buy now a leveraged ETF and oil falls to $ 27. "$ 27 impossible?, Why?. Oil is $ 48.76, if you come down to $ 27 we could lose about 90%! of our investment in a leveraged long ETF.
Second part of article: Oil ETFs (2)
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