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Oil ETFs To Watch In Ike's Wake
Fears surrounding Hurricane Ike's march toward the Texas coast are the new oil catalyst, supplanting for now the usual suspect, Chinese demand. While hurricane chasers are tracking the storm and gathering data, investors should be tracking a few oil investment options of their own.
The following are three exchange traded funds (ETFs) that respond to the ups and downs of crude oil prices. (Not sure how to get started in ETF investments? Check out our Exchange-Traded Funds Tutorial.)
Texas Tea
The U.S. Oil Fund ETF (AMEX:USO) tracks sweet crude oil (West Texas Intermediate). With over $1.2 billion in assets under management (AUM) it is one of the larger oil focused ETFs going. It also has the discretion to place assets into natural gas, heating oil and cash. At the end of July more than 50% of USO's assets were parked in cash. USO has returned 7.56% since the beginning of the year and is currently trading in the $82 price range.
Pure Crude
The PowerShares DB Oil ETF (AMEX:DBO) focuses solely on the performance of light sweet crude oil. This fund is only a fraction of the size of USO with $45 million in AUM. It has returned 11.84% to investors since the beginning of the year. With a net asset value (NAV) near $39 investors are able to participate in the movements of crude oil at nearly half the cost of USO. Investors should keep in mind that small ETFs are sometimes closed when the issuing firm chooses to refocus its ETF offerings.
By the Dozen
The U.S. 12 Month Oil Fund (AMEX:USL) is the smallest investment vehicle of the bunch with $7 million in AUM. USL tracks the performance of sweet crude oil delivered to Cushing, Oklahoma. The futures contracts held by USL cover the current month and the following 11-month contracts for a total of 12 futures contracts. The fund's strategy has allowed it to return 12.19% to investors since the beginning of the year. USL will be one year old in December and is trading in the $61 price range.
Final Thoughts
Despite oil's decline from the heights of $144/barrel in July down to near100 per barrel, ongoing weather related, supply and geopolitical risks remain. I don't believe that emerging markets like China are getting any smaller, which means that the resurgence of oil prices is a matter of time. Timing is impossible, but dollar cost averaging over the next 12 months may be a worth a try.
To get started, read Dollar-Cost Averaging With ETFs.
The following are three exchange traded funds (ETFs) that respond to the ups and downs of crude oil prices. (Not sure how to get started in ETF investments? Check out our Exchange-Traded Funds Tutorial.)
Texas Tea
The U.S. Oil Fund ETF (AMEX:USO) tracks sweet crude oil (West Texas Intermediate). With over $1.2 billion in assets under management (AUM) it is one of the larger oil focused ETFs going. It also has the discretion to place assets into natural gas, heating oil and cash. At the end of July more than 50% of USO's assets were parked in cash. USO has returned 7.56% since the beginning of the year and is currently trading in the $82 price range.
The PowerShares DB Oil ETF (AMEX:DBO) focuses solely on the performance of light sweet crude oil. This fund is only a fraction of the size of USO with $45 million in AUM. It has returned 11.84% to investors since the beginning of the year. With a net asset value (NAV) near $39 investors are able to participate in the movements of crude oil at nearly half the cost of USO. Investors should keep in mind that small ETFs are sometimes closed when the issuing firm chooses to refocus its ETF offerings.
By the Dozen
The U.S. 12 Month Oil Fund (AMEX:USL) is the smallest investment vehicle of the bunch with $7 million in AUM. USL tracks the performance of sweet crude oil delivered to Cushing, Oklahoma. The futures contracts held by USL cover the current month and the following 11-month contracts for a total of 12 futures contracts. The fund's strategy has allowed it to return 12.19% to investors since the beginning of the year. USL will be one year old in December and is trading in the $61 price range.
Final Thoughts
Despite oil's decline from the heights of $144/barrel in July down to near100 per barrel, ongoing weather related, supply and geopolitical risks remain. I don't believe that emerging markets like China are getting any smaller, which means that the resurgence of oil prices is a matter of time. Timing is impossible, but dollar cost averaging over the next 12 months may be a worth a try.
To get started, read Dollar-Cost Averaging With ETFs.
by
Gregory S. Davis
Gregory is a freelance writer for Investopedia.com. He has a consulting background in the banking, telecommunications and healthcare fields. Gregory is a graduate of the Wharton School of Business. Click here to visit his website.
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