Oil ETF (USO) – What’s Behind the ETF
September 19th at 1:33am by Tom Lydon
Chuck Jaffe of Market Watch reviews the exchange traded fund, United States Oil Fund (USO) and calls it the "Stupid Investment of the Week". Although oil prices have been dropping over the last month, Jaffe points out other problems he sees in USO.
USO is the first pure-play oil fund and invests in commodities, specifically short-term futures contracts on West Texas Intermediate Light Sweet Crude. Because the ETF invests in commodities, it has different regulations and tax implications.
- USO is regulated under the restrictive Investment Company Act of 1933, where management is very limited on what they can say about their investment (investors can only read the prospectus to get answers);
- USO is considered a limited partnership from a tax standpoint, meaning that in any year where the fund realizes a gain, shareholders will have to pay taxes on the gain, even if there are no distributions
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