ETF Trends
ETF Trends

We feel we have not heard enough about Oil based ETPs lately given the daily headlines now surrounding rising tensions in Iraq and the overthrow of key cities by an Al-Qaeda splinter group, and perhaps this may be due to just low trading volumes and generally narrow trading ranges in the market itself as of late.

Don’t look now though, as Oil based ETPs are popping once again this morning but on lower trading volumes again. USO (United States Oil Fund, Expense Ratio 0.45%) remains the largest Oil based ETP in the marketplace in spite of the criticism that has surrounded the products for years (2006 inception on the product), but at the same time the fund “only” has about $600 million in assets under management (and well off its peak asset size) and has seen >$77 million flow out YTD despite strong performance as of late.

We say “only” because despite the 2.4 million shares that trade daily in the product, we have not really seen steady asset growth, never mind sticky assets in this product nor related Oil futures based ETPs, at least in comparison to other asset classes like say equity and fixed income.

This may perhaps be a sign that institutional managers may be under-allocated to Oil at the moment if not using other securities to access the space such as futures or options, or that simply most of the activity we see in this and related ETFs is simply short term trading oriented in nature which does not significantly affect asset flows one way or the other in the short term in terms of net create/redeem activity.

Interestingly, the second largest Crude Oil linked ETP is not even a long product, but leveraged short SCO (ProShares UltraShort DJ-UBS Crude Oil, Expense Ratio 0.95%) which now has about $367 million in assets under management and trades >1 million shares daily.

These holders are clearly feeling the pain today on this gap up in Oil, and we may potentially see some shorts getting squeezed out of positions as Crude Oil currently trades at its highest levels since the end of last summer.

If tensions in the Mideast remain heightened, and furthermore as we approach the Labor Day driving season several months out, there is no reason to believe that activity in Crude Oil linked ETPs will remain dormant as it largely is right now.

Other notables here are DBO, OIL, DTO, UCO, and USL just to name a few, and there are several other much smaller and less visible products in this category as well.

United States Oil Fund

For more information on Street One ETF research and ETF trade execution/liquidity services, contact Paul Weisbruch at pweisbruch@streetonefinancial.com.

Street One Financial is an educational/research firm utilizing the Broker Dealer services of Precision Securities, a FINRA registered Broker/Dealer.