Here is why ETFs suck

Discussion in 'ETFs' started by Relleum, Jun 10, 2009.

  1. gkishot

    gkishot

    How is it different from rolling over long oil futures contracts month after month? Why does uso underperform oil continuous front-month futures?
     
    #11     Jun 10, 2009
  2. One reason is that the ETF's huge roll is of course gamed by those taking the other side of the trade.
     
    #12     Jun 10, 2009
  3. Options will still be subject to the contango and would not perform any better than the underlying on average.

    Short the ETF would be better.

    I do not see much benefit to the ETF, which from the point of view of futures traders is a huge lumbering long-only mark, forced to roll over a huge number of contracts on a predictable schedule (although the ETF has taken steps to diversify its roll-overs to mitigate that). Prices adjust ahead of time to facilitate filling the other side of the ETF's anticipated roll orders.
     
    #13     Jun 10, 2009
  4. Cutten

    Cutten

    That was the point of my prior post.

    Unlike contango, expenses and credit risk are unavoidable disadvantages with ETFs.
     
    #14     Jun 10, 2009
  5. Cutten

    Cutten

    Why doesn't price adjust to the anticipated adjustment?
     
    #15     Jun 10, 2009
  6. What I am saying is that the ETF (or anyone else) will get a lousy fill when they enter a massive roll order. (Of course they try to space it out etc.)

    The ETF owns a significant percentage of the long positions in the front month.
     
    #16     Jun 10, 2009
  7. Cutten

    Cutten

    Ah ok, I misunderstood your point.

    Still, the post was "Here is why ETFs suck", then it pointed out something that doesn't even apply to most ETFs (which buy & hold, rather than roll each month). Also, I would imagine most traders of USO aren't capitalized enough for the futures contracts. For them it's a choice of pay for the roll slippage, pay slippage in the options, or don't trade oil at all.
     
    #17     Jun 10, 2009
  8. Right and the original poster could have (hopefully did) made some good money in the ETF if he was long recently, even if not as much as he would have liked.... so he should not feel too bad.....
     
    #18     Jun 10, 2009
  9. jprad

    jprad

    Why would you want to buy & hope anything that's in a downtrend?

    Second, USO isn't the only ETF that focuses on crude, nor is it the best in terms of relative return to the others.

    Third, you simply have to get yourself unignorant if you want to have any hope of survival in this game...

    http://www.marketfolly.com/2009/01/how-contango-affects-crude-oil-etfs-and.html
     
    #19     Jun 10, 2009