June 10, 2009 at 2:30 pm by Tom Lydon
ETF Spotlight on United States Oil Fund (USO), part of a recurring series.
Assets: $2.8 billion
Objective
USO seeks to reflect the performance of West Texas Intermediate light, sweet crude oil. It invests in futures contracts.
How It Works
USO holds long positions on oil futures, rolling them forward each month. Three factors impact the ETF:
1. Changes in the spot price
2. Interest income on uninvested cash
USO’s prospectus warns of such a situation: a negative “roll yield” could cause the net asset value of USO to deviate significantly from crude’s spot price.
The Latest News
Oil has surged above $71/barrel in electronic trading on the New York Mercantile Exchange, marking a high for 2009. The threats of weak demand and excess supply have been overshadowed by fears of a weak U.S. dollar, the threat of inflation and the fact that the Commerce Department expects oil consumption to rebound by 2010, making crude extremely attractive.
USO is up 17.7% year-to-date.
Tags: Commodity ETFs, Energy, ETF 101, ETF Spotlight, Oil, USO
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