These oil and gas investment funds include:
- United States Oil Fund LP – USO
- ProShares K-1 Free Crude Oil Strategy ETF – OILK
- Breakwave Dry Bulk Shipping ETF – BDRY
- Credit Suisse X-Links Crude Oil Shares Covered Call ETN – USOI
- SPDR S&P Oil & Gas Equipment & Services ETF – XES
- iShares U.S. Oil Equipment & Services ETF – IEZ
- United States Brent Oil Fund LP – BNO
- VanEck Vectors Oil Services ETF – OIH
- InfraCap MLP ETF – AMZA
- Invesco S&P SmallCap Energy ETF – PSCE
- Invesco Dynamic Oil & Gas Services ETF – PXJ
- iPath Pure Beta Crude Oil ETN – OLEM
- United States Gasoline Fund LP – UGA
Some of these products listed utilize investments in futures contracts for natural gas, crude oil, heating oil, gasoline, and other petroleum-based fuels that are traded on the New York Mercantile Exchange, ICE Futures or other U.S. and foreign exchanges. These investments warn that the price relationship between the near month contract to expire and the next month contract to expire that compose the Benchmark Futures Contract will vary and may impact both the total return over time of the investments net-asset-value (NAV), as well as the degree to which its total return tracks other oil and gas related price indices’ total returns.
The reason why these funds do not track related oil & gas indexes over time is due to certain warping of futures contracts known as “contango” and “backwardation”. When the near month contract’s price is lower than the next month contract’s price “contango” occurs. In cases in which the near month contract’s price is higher than the next month contract’s price “backwardation” occurs.
The prospectus of a similar investment stated that it was only suitable for those who believe natural gas prices are poised to increase in the short to intermediate term. Further, these investments often explicitly stated that the product is not recommended for use as a long-term holding of any size. Moreover, investors should only consider it for a small position in the satellite portion of a broadly diversified portfolio. Due to the lack of tracking of the indexes one product, UNG, in 2012 dropped (27%) while the natural gas spot price actually rose more than 15%.
Financial advisors must ensure that the oil and gas and commodities related investments being recommended to their client is appropriate for the investor and conduct due diligence on the company before making the recommendation. Unfortunately, sometimes adivsors fail to conduct sufficient research or understand the risks and prospects of the company. Oil and gas and commodities related investments have been recommended by brokers under the assumption that commodities prices would continue to go up. However, brokers who sell oil and gas and commodities products are obligated to understand the risks of these investments and convey them to clients.
Our firm represents securities investors in claims against brokerage firms over sales practices related to the recommendations of oil & gas and commodities products such as exchange traded notes (ETNs), structured notes, private placements, MLPs, leveraged ETFs, mutual funds, and individual stocks. At Gana Weinstein LLP, our attorneys are experienced representing investors who have suffered securities losses due to unsuitable investments in oil & gas related investments. Investors who have suffered losses are encouraged to contact us at (800) 810-4262 for consultation. Claims may be brought in securities arbitration before FINRA. Our consultations are free of charge and the firm is only compensated if you recover.