Commodity-related exchange traded funds (ETFs) have been put through the gauntlet by regulators, but the rules and restrictions may ease if the industry is being too restricted.
Lara Crigger for IndexUniverse caught up with John T. Hyland, chief investment officer and portfolio manager of U.S. Commodity Funds, to talk about the regulatory impact on commodity exchanges, implications of the Saudis’ switch to the Argus Sour Crude Index and the possible move away from U.S.-centric energy ETFs.
Hyland states that the allegations that United States Natural Gas (NYSEArca: UNG) and United States Oil (NYSEArca: USO) caused last year’s extreme volatility in energy prices is unfounded. Critics presumed it was all because of speculators, but it was only opinion. In reality, when oil prices increased, USO’s number of contracts decreased, and vice versa. Investors tended to be net buyers when prices dropped, or the reverse when prices increased. (Natural gas and oil ETFs remain popular).
“Regulators are evolving their thoughts,” says Hyland. If enough regulation persists, investors could move off-exchange and regulators would have to make enough changes to bring back investors.
Saudi Arabia announced its intent to drop the WTI Index in favor of the Argus Sour Crude Index. Hyland sees that the NYMEX and ICE will both contend for the majority of the new index. It is still up in the air which exchange will attract more market makers and traders. U.S. Commodity Funds is still weighing the possible benefits of launching a new ETF based on the index. (Middle East: The next big growth spot?)