OOO - Warning Summary - OOO does not equal WTI, page-4

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ANTON707

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22/04/20

14:57

Post #: 44191233
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Originally posted by JamesRS: ↑

Massive credit to the 'Read Me Before Investing in OOO Thread' for calling out the risks and having some high quality posters who understood and explained the risks. There's plenty of source material in that thread but a summary for those who don't want to go through 100's of posts is here:

1. OOO IS NOT an effective way to bet on an oil price recovery. Funny enough, this is the point that attracts the most denial from people in the other thread because it seems logically impossible to some people. It's because it's based on a logical inconsistency in the chain of reasoning: if OOO tracked the WTI spot price, it would be an effective exposure. It 100% does not do this. Read the below for a simplified summary of why.

2. This is due to the fact OOO invests in futures, not the spot price. Futures are affected by something called contango. The oil price can stay exactly the same but due to contango and its effects on those futures contracts, the price of the ETF can FALL by double digit percentage points. Think about that. Contango is a tax on an ETF holding like this. When the contango is huge like it is now, it's a biiig tax.

3. If you do not understand what contango is, you will lose money on this ETF. If you buy without understanding it, and lose money, you are a fool - the information is there (yes, this applies to me too).

4. Betashares does include this information in the PDS. But their 'headline' marketing is based on 'making it easy to invest in oil' and most of us buy that line, rather than digging into the specific risks. Saying there is no company, currency or concentration risk is also just good marketing.

5. It is basically impossible for retail investors to invest in a rising spot oil price. Doing it through an ETF like this doesn't work if the market is in contango because of negative roll yield from month to month as the fund is forced to swap out its front month contracts for later months. Accept it, move on.

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dear JAmes can you help with following scenario:

On Apr 22 2pm:
NAV= $2,097 AUD
SP= $ 2,55 AUD
WTI Future $ 10.98 USD https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude_quotes_globex.html

What will happen to NAV and SP in Few months say in October 2020 when ideally DEC WTI futures will trade at $ 40 USD or x4 the June price?

Are we saying that because of the extreme countergo effect the SP will not follow the same trajectory of the future WTI and will miss out teh x4 growth cycle?

If this is the case the ETF is missing the main objective which is to follow the Oil price by means of the WTI futures.
OOO Price at posting: $19.36 Sentiment: Hold Disclosure: Held
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OOO - Warning Summary - OOO does not equal WTI, page-4

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