Could one of the more innovative exchange traded funds (ETFs) become a casualty of the rising oil prices?
MacroShares Tradeable Oil Shares (UCR) and (DCR) have had a hard time proving themselves since their inception in November 2006. Not technically ETFs, each fund is designed to track the variations in the price of oil futures. As one fund rises in value, assets shift to it from the fund that’s declining. We spoke with the creators of the funds in January, and how they operate is very interesting.
Brad Zigler for Seeking Alpha says that as the price of oil has gone up, assets have been going into UCR (the "up" fund) at the expense of DCR (the "down" fund). Assets in DCR are finite, and it can only continue for so long.
MacroShares’ prospectus calls for early redemption if certain points are hit, one of which is if the price of oil settles at or above $111 for three consecutive trading days.
We came dangerously close to that a few days ago, but now that oil has once again retreated from its record levels, it looks like the funds are safe – for now.
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.