Get a Grip on Two Sliding Oil Proxies

Another aspect of the balance is that big increases in natural demand for one fund will have to be offset by increasing the number of shares in the other fund. This means that authorized participants may have to commit capital in order for the concept to work. What was that I said about complex?

Yet another point of the funds that needs to be understood is that neither fund owns any oil or derivative of oil. The only thing the funds own are Treasury bills. The positive aspect of this wrinkle is that there will be no price distortions caused by rolling of futures contracts. Another benefit is that the Treasury bills can pay interest to shareholders, which Claymore will pay after paying the expense.

The negative aspect of the structure is that, as mentioned above, the fund is not backed by any oil. You are capturing the price movement of oil by proxy, but the only thing underlying the movement is the mechanics and structure of the product.

The effect is capturing a proxy (or inverse proxy) for oil. The mechanics is the management of two funds that own Treasuries and the complex link between the two. I am not sure why the fee is so high -- 1.6%. The assets that are on the move here are Treasury bills, not actual commodities or currencies. Trading T-bills is the easiest thing there is. I am hopeful that the fee can come down if the concept becomes popular. One last point about the fee is that for now the interest paid by the Treasuries held more than covers the expense. While it is unlikely that rates will go below 1.6%, if they do, the fee will have to come from somewhere.