‘Contango Killer’ ETFs Planned

September 12, 2017

USCF Investments has filed for two ETFs that will offer exposure to commodities while seeking to avoid the dreaded contango phenomenon. The USCF Contango-Killer Oil Fund (No K-1) (USOP) and the USCF Contango-Killer Natural Gas Fund (No K-1) (UNGP) will be structured as actively managed funds with offshore subsidiaries for the commodity portions of their investments.

Both funds are expected to list on the NYSE Arca.

Contango is the bane of commodity futures funds’ existence, and occurs when a commodity futures price is above the spot price. Active management means the fund will be able to use other approaches beyond simply rolling into the next near-month futures contract, as most passively managed commodity ETFs do.

Methodology

The funds will hold their commodities exposure in wholly owned subsidiaries domiciled in the Cayman Islands. The subsidiaries can represent up to 25% of each fund’s total portfolio and will hold futures, options, swap agreements and structured notes linked to commodities and equities.

While the subsidiaries cannot invest in equities, the main portions of the funds can invest in energy-related equities as well as cash, cash equivalents and investment-grade fixed-income securities, the prospectus said.

The subsidiary holdings are what allow investors in the fund to avoid having to deal with the K-1 tax forms, since that means the funds can be structured as 1940 Act funds rather than 1933 Act funds.

The portfolio for USOP will seek to mimic or exceed the returns of the long-term WTI spot price, and UNGP will look to do the same for Henry Hub Natural Gas futures.

The filing did not include expense ratios.

Contact Heather Bell at [email protected]

 

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