ETF To Short Oil Prices Proposed

May 21, 2009

U.S. Commodity Funds has filed to launch an ETF that would take short positions with futures relating to oil prices.


United States Commodity Funds, developer of the popular U.S. Oil Fund (NYSE Arca: USO), has filed papers with the Securities & Exchange Commission to launch a new fund providing short exposure to crude oil futures prices.

The fund will trade on the NYSE Arca exchange under the ticker "DNO."

The fund will attempt to deliver the inverse of the return of a rolling position in crude oil futures contracts; in essence, it will aim to deliver the inverse return of USO.

DNO will gain exposure by shorting crude oil futures contracts on the New York Mercantile Exchange. This will lead to a very different performance profile than the closest competing fund, the ProShares UltraShort DJ-AIG Crude Oil ETF (NYSE Arca: SCO). SCO uses swap agreements to capture -200% of the return of the benchmark DJ-AIG Crude Oil Futures index. Because it focuses on achieving one-day returns, over time, SCO's performance will stray from a simple -2X multiple of the benchmark index.

For more on this effect, you can view's recent webinar on leverage and short ETFs here.

DNO, however, by investing directly in the market through short futures contracts, should hew closely to long-term inverse return of a rolling position in crude oil futures.

The new prospectus is available here.

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