Trade Crude Oil ETF (NYSE:CRUD) Review: reduce Contango & Backwardation in Crude Oil Futures Trading: Options, Futures, Derivatives & Commodity Trading

Trade Crude Oil ETF (NYSE:CRUD) Review: reduce Contango & Backwardation in Crude Oil Futures Trading

There is a new Crude Oil ETF or Crude Oil Exchange Traded Fund which has made debut on the NYSE. It comes from the house of Teucrium Trading LLC, which is pretty new in the ETF space as this is just the third ETF fund lauched by them. However, these 3 ETF's from Teucrium have something unique, all of them are claimed to be designed in such a way that the underlying holding (i.e. the futures contracts) will be spread out in such a way that it will reduce the effects of Contango & Backwardation in Crude Oil Futures Trading. Trade Crude Oil CRUD ETF In this article, we discuss the Teucrium Crude Oil ETF (NYSE: CRUD), and its review, analysis, detail and expert opinion about the Teucrium Crude Oil ETF CRUD Pricing info about this fund can be found on Google Finance (NYSE: CRUD).

Review, Analysis, Details & Opinion about Teucrium Crude Oil ETF NYSE:CRUD

Let's begin with some basic details first: The Teucrium Crude Oil ETF CRUD is an ETF focussed specifically on the futures contracts settlement prices of WTI crude oil (also known as Texas Light Sweet Crude Oil). These are traded on NYMEX under the common name - WTI Oil Futures Contracts.

In what proportion and which futures contracts will Teucrium Crude Oil CRUD ETF invest?
The Teucrium Crude Oil CRUD ETF will invest in the 3 different contracts in the following weights:
1) 35% exposure to near-spot contract of NYMEX WTI Oil Futures Contracts (June or December)
2) 30% exposure to June or Dec contract following (1)
3) Rest 35%exposure to NYMEX WTI Oil Futures Contracts Dec contract following (2)

Whether this strategy of Teucrium Crude Oil CRUD ETF work?
That is the million dollar question. They claim that the above mentioned strategy will work as they are going to invest in the forward curve, and since the fund turnover is limited to only 2 times per annum, it will be beneficial to investors.
However, the futures contracts are from the derivatives segment and they work in their own ways. Take the example of a similar Crude Oil based ETF called USO - United States Oil Fund. That too invests in WTI Oil Futures Contracts with a strategy to roll over the front month holdings as it approaches expiry, to next month. However, that costs money as there are frequent rollovers.
In fact, going by one year period returns (2010), we see that the WTI Oil Futures Contracts returned around 14%-15% but the USO Fund returns were not even positive over the same period - i.e. investors lost money in USO.
Compare that to what Teucrium Crude Oil CRUD ETF is offering, is a 6 monthly rollover, thereby claiming low rollover charges and investments for long term.

Expense Ratio and Management Charges of Teucrium Crude Oil CRUD ETF?
The management charges are mentioned to be 1%

Final Thoughts about investments in Teucrium Crude Oil CRUD ETF?
This Teucrium Crude Oil CRUD ETF offers investors another option to trade crude oil efficiently. Being an ETF, it will be exchange listed and will be suitable to both short term traders and long term investors, who want to bet their money on crude oil prices.
The additional benefits, as claimed by Teucrium Crude Oil CRUD ETF, are that it will reduce Contango & Backwardation effects in in underlying futures trading by the way described above with specific portions of money being invested in long term crude oil futures contracts.
However, I'm a bit concerned over the high management fee of 1%, which itself does not include the trading expenses and commissions of trading the underlying NYMEX WTI Oil Futures Contracts.
As a trader or even as an investor, I would love to see lower expense ratio - somewhere around 0.7%.
Overall, the Teucrium Crude Oil CRUD ETF will be another good option for investors and traders in crude oil trading business to give a try.
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