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Rating:WSJ Delves into the Headaches of One Popular ETF Not Rated 2.0 Email Routing List Email & Route  Print Print
Friday, March 06, 2009

WSJ Delves into the Headaches of One Popular ETF

by: Armie Margaret Lee

The Wall Street Journal devoted an article on Friday to the challenges faced by United States Commodity Funds LLC's (formerly Victoria Bay Asset Management) U.S. Oil Fund, which has grown from $7 million three years ago to $3.8 billion. Due to its size, the ETF is unable to go in and out of contracts without moving markets and providing speculators an opportunity to bet on those moves.

For instance, on February 6, the fund switched its 80,000 contracts from March to April at the end of the trading day. The funds' managers were about to roll the contracts, when suddenly "came the awfully extreme move," The Journal quotes one manager as saying. The price move made it pricier for U.S. Oil to make the switch; it cost the fund roughly $120 million than it would've a day before.

The following week, U.S. Oil complained to New York Mercantile Exchange, an unnamed source told the Journal. The Commodity Futures Trading Commission is investigating the trading.

U.S. Oil last month made a decision to roll contracts over a four-day period rather than in a single day. Whether that will help lessen the impact on the market will be seen Friday, day one of the next roll.  

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