ETF Investors Of United States Oil Fund May Not Have Known Full Extent Of Risks
Our investment fraud lawyers are offering free case consultations to investors who’ve lost money in the United States Oil Fund (USO) after it dropped 30%. The exchange-traded security continues to make changes to its structure in an attempt to stave off more losses. Part of this now involves giving itself the leeway to get into long-term contracts. The USO exchange-traded fund (ETF), which keeps track of oil prices, is popular among retail investors.
Unfortunately, many of these investors think they are betting on oil prices’ long-term rise and do not fully comprehend how the futures market operates or that these types of funds hold primarily short-dated oil futures contracts and should never be held long-term.
Please contact Shepherd Smith Edwards and Kantas (SSEK Law Firm) today and ask to speak with one of our experienced ETF fraud attorneys.
USO Opts For Long-Term Contracts Just As Oil Prices Drop Below Zero
One of the most recent modifications to the exchange-traded fund’s (ETF) structure took place on Tuesday, one day after US oil futures took a nosedive and hit prices that were way under $0.
As in, according to the Wall Street Journal, a barrel of West Texas Intermediate crude scheduled for delivery in May, priced at $18.27/barrel on Friday was by Monday priced at -$37.63/barrel. This put sellers in the position of having to pay buyers to make purchases. June and July contracts also dropped. By Wednesday, the price of oil had risen back up 40% on the high. USO, also on Wednesday, said it was doing an 8-for-1 stock split to hopefully cause its stock price to go up.
Earlier this week, the United States Oil Fund announced that it would invest in different futures oil contracts for delivery in August. Previously, the fund was supposed to purchase futures in the contract that was the nearest scheduled. It was just last week that USO modified its structure to hold contracts with longer dates for delivery.
Meanwhile, USCF, which manages USO, announced that the exchange-traded security was temporarily suspending the issuing of “creation baskets”, which hold the underlying securities. Without these baskets, the ETF will trade using a fixed number of shares.
Experts Warn Retail Investors Away From Commodity-Based ETFs, Including USO
On Monday, Hayman Capital Management CIO, Kyle Bass, spoke on CNBC’s “Closing Bell”, where he expressed caution and concern of ETFs that monitor oil prices. He noted that many investors think they are purchasing spot crude oil when really they are purchasing “the next front month.’ Bass warned that if they were to continue to buy into these types of funds there would likely be losses.
CNBC also reported on its website that according to Ned Davis Research Energy strategist, Warren Pies, commodity-based ETFs are “at worst… design to implode.” And yet, according to Pies, investors continue to put their money into the USO ETF.
What Are Commodity ETFs?
This type of exchange-traded fund invests in commodities that are physical, such as precious metals, natural resources, and agricultural goods. It is usually focused on either a single commodity that is held in physical storage or investments in future contracts. Those that buy a commodity ETF generally don’t own a physical asset. Rather, they own a set of contracts backed by the commodity.
These types of exchange-traded funds tend to be popular as they offer investors exposure to commodities without having to learn how to buy other types of derivative products or futures.
ETF Funds Fraud Law Firm
If you were a retail investor who wasn’t fully apprised of or never completely understood the risks involved in the United States Oil Fund ETF or any other commodity-based ETF, contact SSEK Law Firm so that we can help you explore your legal options.
You may have grounds for an investor claim against your broker and their broker-dealer that recommended the ETF to you.