Securities Lawyers Blog
Our firm is investigating potential securities claims against brokerage firms for sales practice violations related to the recommendations of oil & gas and commodities products such as exchange traded notes (ETNs), structured notes, private placements, master limited partnerships (MLPs), leveraged ETFs, mutual funds, and individual stocks.
One investment that advisors may be recommending to clients in order to gain exposure to oil is the iPath S&P GSCI Crude Oil Total Return Index ETN (Symbol: OIL). OIL is a speculative ETN that attempts to “reflect[] the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract.” Brokers may be recommending OIL for long-term holding when, in fact, OIL is a risky ETN that is only appropriate for short-term investment speculation on the price direction of oil.
As Morningstar has written, “Due to the extremely specialized exposure of the fund, investors should only consider it for a small position in the satellite portion of a broadly diversified portfolio.” MorningStar also explained how the futures invested in the fund make the investment inappropriate for long-term holdings and how the price of the fund is not related to the price of oil. “For example, in 2013 OIL increased 5.6%, close to WTI’s spot price gain of 6.9% for the year. However, over the trailing five-year period OIL lost 1% annualized, compared with an annualized gain of more than 20% for spot WTI over the same period.”