OOO (ASX) Ann: Update Regarding Temporary Change to Futures Exposure

Originally posted by dutybound: ↑

I only used to hold ETF's to obtain exposure to markets that I can not hold directly. What has happened here has opened my eyes to a change in my investment strategy that if I can't hold the inderlying myself then accept you can't invest. All that will happen here is that the cost of holding the future will continue as eat away at returns, but not get the benefit of being exposed to the upside movement that was always going to happen when the bottom of the market was reached back in April.

The one-month oil price has skyrocketed from its lows, while OOO has effectively flatlined, never to recover IMO, given the way that the ETF works. What will probably happen is that as soon as they make a decision to change back to one-month, it will inevitably be at the top of the market after the run has occurred.

This is the equivalent of selling low and buying high.

A very expensive lesson for me, and as soon as I think that the price of oil has steadied it will be time to exit forever.

Fool me once, shame on you, fool me twice, shame on me.

Expand

@dutybound. Your assessment as written is flawed. The largest being that OOO has recently flatlined. It clearly has not, rising from the $2.50 range to the $3.80 range. An over 50% gain in the last two months, and in line with 3 month WTI fluctuations over the period. OOO was a poor investment historically, driven primarily by the consistently decreasing oil price. All commodity futures contracts have contango/backwardation dynamics to understand. The current structure of this ETF lowers the risks of direct oil investment two ways. One, it ‘rolls’ unemotionally every month on a set timeline to a 3 month out contract. And two; it is currency hedged.

At around $25 a barrel back in April I believed oil would rise given Covid-19 reopening pressure in the USA, Asia and Europe. I was looking for a ‘lower risk’ oil investment vehicle. When OOO changed to the 3 month contract further losses for then current holders ensued. But for me, that presented a lower risk investment opportunity to gain exposure to Oil price increases. So I bought in at $2.86 and continue to hold as I believe WTI will rise above $40 in coming weeks. When it does I will be looking to trade out (though it would not surprise me if WTI went above $50 in the medium term given production decreases currently being extended). At which point my investment will have seen an approximate 50% return (currently ~35% gain) over a 6 - 8 week hold.

I agree that OOO has been a horrible investment for many. I would not suggest being a long term holder of OOO. However, it is currently the lowest risk Australian investment vehicle to gain exposure to a rising oil price.