The Long and Short of Oil ETFs | ETF Trends

Oil-related exchange traded funds (ETFs) have come and some have gone, with interest and popularity backing the ones still around while setbacks or disappointments struck others. Desipite the lack of physically-backed oil ETFs, investors may still choose from several futures-backed ETFs or exchange traded notes (ETNs).

Oil ETNs, like regular stocks, are taxed depending on short-term or long-term capital gains rates, with gains or losses taxed at 60% long-term and 40% short-term, writes Don Dion for TheStreet. An investor should also note that this investment vehicle is subject to the credit worthiness of the financial institute issuing the security. (Disclaimer: We aren’t tax experts, and you should consult your tax expert on tax issues concerning your investments.)

Another differing characteristic between the funds are the timing of the contract rolls. For example, United States Oil (NYSEArca: USO) rolls contracts each month, whereas PowerShares DB Oil (NYSEArca: DBO) follows the Deutsche Bank Optimum Yield Index, which tries to minimize contango or maximize backwardation. [Contango and ETFs.]

Investors seeking to invest long in oil may choose USO, DBO, United States 12 Month Oil (NYSEArca: USL), iPath S&P GSCI Crude Oil TR Index ETN (NYSEArca: OIL) or PowerShares DB Crude Oil Long ETN (NYSEArca: OLO). As a result of contango in the oil futures markets, these funds have had disparate performances. OIL trades similarly to USO. DBO and OLO both track the Optimum Yield Index. USL uses a monthly roll strategy but holds the next 12 months of oil futures contracts, which reduces the cost of contango and makes the fund more similar to DBO. [Oil ETFs: Down Now, But What About The Future?]