Sorting Out Oil ETFs; What To Buy With Oil North of $100 a Barrel

March 7th at 10:00am by Tom Lydon

DistributeThe 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:

  1. A proprietary "optimum yield" roll methodology used by Deutsche Bank.
  2. 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.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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