The United States Oil Fund will trade under the symbol "USO" and be managed by Victoria Bay Asset Management of Alameda, Calif., according to MarketWatch.
The newest in a wave of ETFs based on commodities, the oil fund will track crude-oil prices, allowing investors to buy into the resource itself, rather than shares of broader category mutual funds or a specific energy company.
The fund will invest in energy futures contracts and options, and will hold short-term Treasury Bonds. The goal is for shares' performance to follow the spot market prices for West Texas Intermediate (WTI), a type of oil characterized as "light" and "sweet" and used as the benchmark in the U.S. markets.
USO share prices will reflect closing prices of near-month oil futures contracts on the New York Mercantile Exchange, according to SEC filings. The management fee, not including commissions or brokerage costs, will be 0.5% of assets.
Macro Securities Depositor of Morristown, N.J., has also filed an application for an oil EFT, this one tracking Brent crude oil, a heavier type most commonly associated with Northern Europe.
Paul Mazzilli, an analyst with Morgan Stanley, notes that the fund is structured like the Deutche Bank Commodity Index Tracking Fund launched last month. While Mazzilli expects the USO fund to do well because it is a pioneer in its field, he told MarketWatch it is unlikely to do as well as the first gold ETF, the StreetTrackers Gold Trust, which attracted $6.1 billion.
Morningstar analyst Dan Culloton noted that the oil ETFs will make commodities more accessible to small investors, but warned against investing too much in the new product, as oil prices are extremely volatile. "It's better to temper expectations and not to expect returns will continue forever," he said.
Oil ETFs may also be less tax efficient than stock funds because of the way tax law treats gains on futures contracts, Culloton said.
Alex Reiss, vice president of Ryan Beck & Co., in Florham Park, N.J., disagrees with Culloton. These funds will be extremely popular, especially among investors looking to protect their portfolios against unrest in the Middle East. Furthermore, demand may be further fueled by analyst expectations that the price of oil will continue to climb, he said.
Like Culloton, Reiss warned, "oil prices are very volatile, and investors shouldn't overly concentrate their portfolios in one asset class or fund."