An Oil ETF Outpaced Crude by 5 Times Last Year. The Downside: Volatility.

Shares of the

U.S. Oil

exchange-traded fund surged 5.2% in the week before Christmas, and ended up 27% for the year. Oil prices did rise last year by nearly 5%, but how did an ETF that tracks them outperform by so much?

Because, as USO says on its website, it isn’t a proxy for oil prices, but an investor in oil futures. “USO is an instrument flashing on news tickers all the time,” says Robert Yawger, director of energy futures at Mizuho Securities USA, adding that most investors “don’t understand the consequences” of futures contracts. “Nobody in the world should buy [USO] thinking it’s tracking oil,” says Dave Nadig, a financial futurist at VettaFi. “You’re investing in expectations about energy.”

#Oil #ETF #Outpaced #Crude #Times #Year #Downside #Volatility

Leave a Reply

Your email address will not be published. Required fields are marked *