March 07, 2008 at 10:00 am by Tom Lydon
The worst-performing oil exchange traded fund (ETF) might be tops when distributions are factored in.
Hard Assets Investor for Seeking Alpha took a look at oil-focused ETFs and ETNs and noticed that the PowerShares DB Oil Fund (DBO) underperformed competing funds, as well as spot oil for the past year:
- PowerShares DB Oil Fund (DBO), up 53.8%
- United States Oil (USO), up 73.5%
- United States 12 Month Oil (USL), up 73.5%
- West Texas Immediate Spot, up 66.2%
It’s no slouch – it is in positive territory, after all. But holders of DBO received a distribution of $1.28 per share last December, meaning that on a total return basis, DBO is ahead of its peers, and is up 83%.
The distributions come from two sources:
- A proprietary "optimum yield" roll methodology used by Deutsche Bank.
- Interest earnings and gains passed to shareholders from the 3-month Treasury Bill market, which are used to collateralize the futures contracts in DBO’s portfolio.
But the tax question can’t be ignored: what benefits are still there when Uncle Sam comes calling? If this is a sector you’re considering, use your IRA or qualified plan.
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