Update On Oil ETFs and Contango

One of the first things I did on this blog, way back in April, was to cover crude oil ETFs and their performance relative to spot. This was a pretty big issue at the time, as many of these funds were hit with contango tracking issues that left many upset.

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One of the most visible aspects of this cumulative log-return comparison is that UCR again outperforms all other ETFs. This, however, comes at the cost of a lower correlation to spot, and one would not want to short UCR in order to short oil. Granted, perhaps Claymore has decided to overcompensate for such tracking errors in each direction by providing separate up and down funds, but this fact should then be made perhaps more clear.

Overall, based on raw weekly correlation, DBO and OIL come in a very close 1st and 2nd for tracking accuracy on spot.

Weekly Log-Return Oil ETF Correlation to West Texas Spot

Symbol	R
USO	88.64%
OIL	96.59%
UCR	74.24%
DBO	96.61%

Comments

[ETF Investor:]

I think you are misrepresenting the sole purpose of the USO fund- to track the daily movements in the price of the front month NYMEX crude oil contract. Tracking on a day by day basis, which it does exceptionally well, does not mean that long term it will have perfect tracking to the price of spot crude, which also deviates in its own way from the price of the front month NYMEX crude contract. Take into account the rollover process from month to month, and what you have is a fund that is drastically different from the others. At the end of the day, the fund is great for short term investors looking to latch onto crude movements over the course of a day but other funds are better for long term oil "investing" (rather than speculating, although anything dealing with commodities can be classified as such)

2007 Sep 16 03:54 PM

[Michael Bom...:]

Hello ETF Investor,
Yes, I discuss the difference in these funds for traders vs. investors in the link mentioned in the article. I understand that these funds are not all technically designed to track the same price, but as USO was for a long while the only liquid proxy to oil, many still hold and treat it as such.

2007 Sep 16 04:26 PM