DCR is down so much because of an early termination clause in the notes’ structure. If the front-month price of crude closes above $111 for three straight days, the clause kicks in and the notes stop trading at their net asset value (NAV) on the fourth business day prior to the end of the quarter in which the termination occurs.
For that reason, DCR was trading at just above $9 per share, but the NAV was $3.83.
Considering the rapidly rising price of oil, such a scenario doesn’t seem completely out of the question. Oil closed at $110.12 yesterday. It closed at $110.11 today. It’s certainly flirting with the $111 mark, and it may test that termination clause.
Since each pair of these funds is worth $40 in total (or, one-third the price of a barrel of oil), if the price actually reached this level, the Down trust would run out of money for the Up trust. The solution, says Gary for Investing Minds, is that payouts to Up trust holders are capped at $40 per share.
If this all sounds confusing, you’re not alone. It’s a good lesson to always be sure you know what you’re getting into when you purchase ETFs, especially when it comes to products with as much going on behind them as this one does. And read the prospectus! This clause is stated within the prospectus a number of times, warning of the risk involved with these ETFs.