Exchange traded fund investors may find a better way to control their oil exposure through two new AccuShares ETFs designed to track swings in the spot price.
On Tuesday, June 28, AccuShares Investment Management brings to market the AccuShares S&P GSCI Crude Oil Excess Return Up Shares (NasdaqGM: OILU) and AccuShares S&P GSCI Crude Oil Excess Return Down Shares (NasdaqGM: OILD).
The new ETFs could potentially offer a more reliable way to track and capture oil market moves, without the trading costs and structural flaws associated with other oil-related exchange traded products.
Popular U.S.-listed exchange traded products track crude oil futures. Consequently, the more well-known oil ETFs are exposed to the negative effects of contango in the futures market.
Contango occurs when later-dated contracts trade at higher prices relative to contracts that are close to maturity, which may cause the funds to sell low and buy a new contract at a higher price. For instance, according to the CME Group, August 2016 WTI crude oil contracts were hovering around $46.67 per barrel while July 2017 WTI crude oil contracts were trading around $50.30 per barrel.
Since ETFs have to roll over contracts, or sell those close to maturity, and buy a later-dated contract, these futures-based oil ETFs would essentially sell low and buy high, losing money on each roll during a contangoed market.[related_stories]
However, AccuShares has come up with a different approach with the new oil products. The funds will track changes in the price of oil through the S&P GSCI Crude Oil Index over a one-month period. Moreover, the funds will come with a distribution to shareholders of cash on prescribed distribution dates – the Up shares will be entitled to a distribution when the fund’s underlying index has increased as of a specific dates or by more than 75%, and the Down shares will be entitled to a distribution when the underlying index declined.