Normal
from the AFRA statement of the bleeding obvious from exchange traded fund provider BetaShares has come a little too late for investors wrong-footed by the volatility in oil prices. In its third update to the ASX in five days, the purveyor of the BetaShares crude oil index ETF riffed on the immediate rollover of near-month oil futures contracts announced by S&P Dow Jones Indices, which provides the index upon which their ETF is based. The unscheduled rollover of the West Texas Intermediate contract from the June contract to the July contract prompted BetaShares to lament that "the announcement by the index provider is further confirmation of the high level of risk associated with exposure to the near-term WTI crude oil futures contract." You don't say? The problem is that up until last week that very exposure was the bedrock of its investment strategy and that of large overseas exchange traded products like the US Oil Fund. Having watched the value of its ETF plummet from a high of $16.56 on January 6 to a record low of $2.50 on Wednesday, the BetaShares ETF has switched its exposure from the near term month contract to the September contract.While a higher tracking error won't deliver investors the exposure they thought they were buying, it is hoped the September contract will be less volatile and insulate it from another bout of negative prices. BetaShares was blunt about the consequences of negative prices in an updated product disclosure statement: "In such circumstances the responsible entity may need to consider whether the fund should be terminated.” The surprising move by S&P Dow Jones Indices - and its launch of a review of its commodity indices, rollovers, and negative oil prices - looms as the denouement for futures-based exchange traded oil products.It highlights how the combination of oversupply and demand destruction sparked by COVID-19 - and the attendant warping of prices into negative territory - has investors scrambling for a solution amid expectations for a protracted period of weak and volatile prices.The profound flaws of oil ETFs have been revealed by the swelling glut of oil that pushed WTI prices to negative $US40 a barrel last week.The market contango, or when longer term prices are higher than short term prices, has made them forced sellers at low prices and motivated buyers at high prices. The bringing forward of the rollover from the June contract to July contract saw the contango between the two widen to over $US7 a barrel at one point.
from the AFR
A statement of the bleeding obvious from exchange traded fund provider BetaShares has come a little too late for investors wrong-footed by the volatility in oil prices. In its third update to the ASX in five days, the purveyor of the BetaShares crude oil index ETF riffed on the immediate rollover of near-month oil futures contracts announced by S&P Dow Jones Indices, which provides the index upon which their ETF is based.
The unscheduled rollover of the West Texas Intermediate contract from the June contract to the July contract prompted BetaShares to lament that "the announcement by the index provider is further confirmation of the high level of risk associated with exposure to the near-term WTI crude oil futures contract."
You don't say? The problem is that up until last week that very exposure was the bedrock of its investment strategy and that of large overseas exchange traded products like the US Oil Fund.
Having watched the value of its ETF plummet from a high of $16.56 on January 6 to a record low of $2.50 on Wednesday, the BetaShares ETF has switched its exposure from the near term month contract to the September contract.
While a higher tracking error won't deliver investors the exposure they thought they were buying, it is hoped the September contract will be less volatile and insulate it from another bout of negative prices.
BetaShares was blunt about the consequences of negative prices in an updated product disclosure statement: "In such circumstances the responsible entity may need to consider whether the fund should be terminated.”
The surprising move by S&P Dow Jones Indices - and its launch of a review of its commodity indices, rollovers, and negative oil prices - looms as the denouement for futures-based exchange traded oil products.
It highlights how the combination of oversupply and demand destruction sparked by COVID-19 - and the attendant warping of prices into negative territory - has investors scrambling for a solution amid expectations for a protracted period of weak and volatile prices.
The profound flaws of oil ETFs have been revealed by the swelling glut of oil that pushed WTI prices to negative $US40 a barrel last week.
The market contango, or when longer term prices are higher than short term prices, has made them forced sellers at low prices and motivated buyers at high prices.
The bringing forward of the rollover from the June contract to July contract saw the contango between the two widen to over $US7 a barrel at one point.
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