The Divergence in Oil Futures and ETFs
What has particularly struck me recently was the lack of recovery in $USO compared to crude oil futures. Taking the peak in 2008 as starting point, the futures have dropped 46% while $USO is down 65%. This underperformance is definitely something to be suspicious about.
MarketWatch offers an interesting explanation, whereby they assert that this divergence is due to the fund’s structure. The so called “contango” (explained in article) leads to a deterioration in price. It is further suggested that PowerShares DB Oil Fund $DBO is a better alternative because they “employ different strategies to alleviate the impact of contango and are doing much better”. Comparing the two charts will visualize by how much the ETF is lacking behind.
Category: Stock Market