USO ETF Needs to Change Charter, Jim Cramer Says
Let's talk about oil.
Specifically, let's go over what's happening with the United States Oil ETF (USO).
Luckily, TheStreet's ETF Focus has taken a look at the woes impacting USO and David Dierking broke it down.
For starters, USO, which invests in forward oil futures contracts, is down 78% year-to-date. While the fund's price has been cratering, investors and speculators have moved in adding $3 billion to the fund's total asset base in about a month and a half. USO was recently at just $1 billion, so the fund has quadrupled in size. This has put a lot of strain on the fund to operate effectively.
USO only has a fixed number of shares available to buyers. That wasn't a problem before, but now that money has poured in, all of those shares got snapped up. The fund hit its max earlier today and was forced to announce that it is halting all new share creations until the SEC is able to step in and approve a new issuance.
The ETF industry's share creation/destruction mechanism helps ensure that the fund almost always trades at or very near its underlying NAV. Now that this mechanism effectively no longer exists, USO essentially has begun trading like a closed-end fund, a portfolio that only has a fixed number of shares and trades based on supply and demand. Like CEFs, USO has begun disconnecting from its underlying NAV and now trades at a massive 20%+ premium.
So, what does Jim Cramer think?
Watch the full video above for Cramer's full take.
Want to know what Jim Cramer and his team at Action Alerts PLUS are thinking about the markets and the stocks they're watching? Sign up on Action Alerts PLUS for more.
Cramer and the team are weighing in on what members need to know about the coronavirus pandemic's impact on the market. Here's how you can recap his entire April show.
Watch More of the Latest Videos on TheStreet and Jim Cramer
- Webinar Preview: Expert Advice on Wealth Planning for Turbulent Markets
- Retirement Daily: Self-Employed? Here's How to Save Up to $62,000 a Year for Retirement
- Sallie Krawcheck: During the Coronavirus Pandemic, Should You Lower the Amount Allocated to Your 401k?
- Jim Cramer: Apple Is Still an 'Own, Don't Trade' Stock
- Jim Cramer's 5 Books to Read During the Coronavirus Pandemic