Just as two exchange traded funds (ETFs) tied to the price movements of oil reached their termination triggers and closed on June 25, two more will be entering the market space to replace them.
The previous funds – MacroShares Oil Up (UCR) and MacroShares Oil Down (DCR)
– had a termination trigger built in that stated if the price of oil
stayed at or above $111 a barrel for three consecutive days, the funds
would terminate. As we all know, oil is well above that price point now
and, and the trigger was set off on April 16.
As outlined in the prospectus, the net asset value (NAV) will be
returned to investors. Investors in UCR will receive the full value,
while DCR investors will receive nothing.
MacroMarkets President and CEO Sam Masucci says the first two funds
were a big success in their 18 months of life, gathering $1.5 billion
in assets and trading 17 million shares a day at their close on June 25.
Just as their predecessors had been, UOY and DOY are paired products
that track the price movements of West Texas intermediate oil. The
starting price for a share is $25, representing one-quarter of the
benchmark oil price. As the price rises and falls, assets are
transferred back and forth dollar-for-dollar between the Up and Down
The termination trigger for the new funds is $185 a barrel.
"It’s not our job to predict the future price of oil or which way an
investor should bet," Masucci told us. "We just provide the means."
Masucci also points out that MacroShares could benefit from the
increased regulatory pressure being placed on the oil markets. As
people look for a scapegoat and speculators become increasingly vilified,
these funds are a guilt-free way to capitalize on the rising price of
oil. "They’re a passive product, and we don’t own futures," Masucci
The first paired funds were revolutionary, and since they’ve launched,
the markets still haven’t seen anything like them. "Over the last 18
months, we spend a lot of time educating institutional investors and
broker/dealers. We got a lot of feedback."
Masucci says they took that feedback and applied some of it to the new
funds. That includes lower fees, thanks to a simplified trust
structure. The original funds had fees of 0.16%, while the new funds
come with a 0.095% expense ratio, plus a fixed expense of $600,000.
"The original structure had a 20-year term. These will have a five-year
term, which was feedback from the market. We have learned a lot and
tried to respond."
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.