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Proprietary Data Insights Financial Pros’ Top Energy Commodity ETF Searches in the Last Month
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The Top 5 Oil & Gas ETFs According to Financial Pros |
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Analysts expect a global crude oil shortage in 2025. So far, U.S. drillers have kept pace with demand. But that could be about to change… There’s no better way to play the space than to follow the movements of money managers. This year, the U.S. Oil Fund ETF (USO) has been their top pick. However, we’d urge caution before adding this to your portfolio. You see, commodity ETFs have a built-in mechanism that erodes the assets’ value over time. And it’s something you need to understand before diving in. SponsoredWhile these ETFs are the most common way to play oil and natural gas prices, they’re not the only one…and certainly not the most direct. Big Money knows the best way to play the price of oil and natural gas is by using futures contracts, which come in all shapes and sizes. And right now, you can get started for free today with NinjaTrader – one of the market’s top futures brokers. Click Here for more details. Sponsored Key Facts About USO
The USO is a commodity ETF that tracks the daily percentage change of light sweet crude oil delivered to Cushing, Oklahoma (AKA West Texas Intermediate). It’s one of the most popular and largest for trading oil. The USO is in fact so large that it owned 25% of all the open WTI crude oil futures contracts at one point. You see, rather than own the actual commodity, the USO uses futures contracts to track the price of crude oil. Futures contracts are like options contracts in that they have expiration dates and use leverage. However, unlike options contracts, futures contractsSponsored are obligated to fulfill the contract, not the right. Longer-dated contracts tend to trade at higher prices than the near-dated ones. So, when the near-dated ones expire, the USO sells them and buys the longer-dated ones. This ‘roll’ costs money and erodes the value of the ETF over time. You can see that clearly in the chart below.
This natural decline is why the USO is better suited for trading rather than investing. SponsoredAnd if you’re going to be trading, why not directly invest in futures yourself instead of using a derivative?Sponsored Performance If you held onto the USO for years, it would cost you dearly.
A $10,000 investment held from the inception would be worth a bit more than $1,200 today. While there are years where it can outperform, especially during huge runs in oil prices, its typically loses value.
Competition Other oil and natural gas ETFs follow similar structures, using derivatives, mainly futuresSponsored, to track the daily price movement of the commodity, its inverse, or a leveraged position against either. These were the most popular ones selected by financial pros:
Not only do these commodity ETFs come with high expense ratios, since they actively trade in and out of futures contractsSponsored, but their long-term performance is awful. The USO is the best just because oil prices have risen dramatically from where they were five years ago.
Our Opinion 2/10 We’re not a fan of using commodity ETFs like the USO for anything other than trading. The best ways to hold long-term exposure to the sector is through oil & gas exploration and production companies that live and die by the price of those commodities. Sponsored However, there’s another option you should consider. Futures contracts give you direct exposure to the daily spot price of everything from crude oil to gold, the S&P 500 to the Nikkei. These leveraged instruments are available in micro contracts for those looking to dip their toes in and learn the space. Head on over to NinjaTrader today and see how futures can fit your investment strategy.Sponsored |
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