US Oil Fund ETF Fails Investors Consistently

When it comes to exchange traded funds [ETFs], no two ETFs are alike. Also, not all are successful. For every S&P 500 "Spider" (SPY) or Nasdaq PowerShares QQQ Trust, Series 1s (QQQQ), there are several lightly traded ETFs.

However, the one ETF that has failed investors consistently is the US Oil Fund ETF (USO). Investors have expected this ETF to trade in concert with the price of crude oil. However, nothing could be further from the truth. Unlike the streetTRACKS Gold Trust (GLD), an ETF that closely tracks the price of gold, the USO is a complex ETF that has failed to deliver.

Since the USO relies on the use of derivative contracts rather than physical assets and gets caught up in the vagaries of the crude oil markets – such as price contango – the USO has a built-in recipe for disappointment. If you want to use exchange traded instruments to take advantage of crude oil price movements, then think twice. You are better off looking for an oil services or integrated oil stock that highly correlates with crude oil prices rather than playing around with the USO.

Disclosure: At the time of writing, the author, his family and / or the clients of LakeView Asset Management, LLC were short shares of SPY. Positions can change at any time.

Comments

[MichaelBommarito]

Hello Scott, I demonstrate here that UCR, though less correlated short-term, does a better job hedging against crude than USO. This is one of the two other options, the other being DBO.

[Ralph F]

There's also the Barclays Bank PLC iPath Exchange Traded Notes Linked to Goldman Sachs Crude Oil (OIL).

[DIEGOJAMES]

STO-STATOIL- IS A GOOD ETF FOR OIL,GAS, DRILLING,HYDROGEN ETC WIND...USO so-so...sometimes.
NORWAY CAN AS A COUNTRY ENTER MANY AREAS AND SELLS INTO THE STRONG EUROPEAN MARKET WITH STRONG EURO.