Recent Oil Prices Make Up, Down ETFs Tricky | ETF Trends

The inverse/down oil exchange traded fund (ETF) from MacroShares appears to have a mind of its own.

There are actually two funds designed to move along in a given direction according to what oil is doing: MacroShares Oil Down (DCR) and MacroShares Oil Up (UCR).

A quick explanation:

  • UCR: long-term price of oil
  • DCR: long-term inverse of oil
  • The sum of the two funds is always $40

That’s because the funds hold treasuries and cash. They’re issued in pairs to authorized participants, who are then free to trade them on the secondary market. The funds’ trustees have a "swap agreement" in that as the price of oil shifts, assets between the funds move accordingly. As an example, when the price of oil moves up by a dollar, one dollar is taken from the DCR trust and moved to the UCR trust.

Oil traded up more than 3% yesterday, once hitting $111.68. Yesterday, DCR was down 29.2%, while oil had been up only 3.12%, reports Bespoke Investment Group on Seeking Alpha.

What is going on?