A wildly popular oil ETF has been cut off by its broker from buying futures, limiting its ability to meet its investment objective

Reuters / Brendan McDermid
  • USO — an oil exchange-traded fund that's wildly popular with traders — has been cut off from buying oil futures contracts after a surge in volatility saw oil prices turn negative last month.
  • RBC Capital Markets has informed United States Commodity Funds, the operator of the USO ETF, that they may no longer hold positions in or buy oil futures contracts until further notice, according to a Thursday SEC filing made by the ETF.
  • As a result of RBC's actions, USO says it may hold larger amounts of treasuries and cash, "which will further impair USO's ability to meet its investment objective," according to the filing.
  • Read more on Business Insider.

Following unprecedented volatility in the oil markets, which briefly caused oil prices to turn negative last month, a wildly popular trading ETF has been barred by its broker from buying or holding oil futures contracts. That will limit its ability to meet its investment objective, according to an SEC filing submitted on Thursday.

USO, an ETF owned and operated by United States Commodity Funds, was informed by its only Futures Commission Merchants, RBC Capital Markets, that it is prohibited from holding or buying oil futures contracts until further notice.

According to the filing, "RBC has indicated that such limitation on USO is a result of RBC's own internal risk management requirements and directions it has received from other regulators in the United States, Canada, and the United Kingdom."Advertisement

In the mean time, USO has been looking to enter additional FCM agreements so it can resume purchasing oil futures contracts, but has yet to enter an agreement.

The restrictions from RBC are impairing USO's ability to meet its investment objective.

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"[USO] may be required to invest in other permitted investments including other oil-related interests and may hold larger amounts of Treasuries, cash and cash equivalents, which will further impair USO's ability to meet its investment objective," the filing said.

USO's investment objective is to track a benchmark of short-term oil futures contracts that closely reflect the spot price of crude oil. The USO ETF is "still trading and able to rebalance and roll its portfolio," United States Commodity Funds CEO John Love said, according to FT.Advertisement

USO has seen an explosion in popularity among traders.

Data from Robintrack.net shows that the number of Robinhood accounts that own the USO ETF surged more than 2000%, from ~8,000 in early February to more than 170,000 today.

Despite being down -75% year-to-date, assets under management in USO have more than quadrupled from $1 billion in early 2020 to $4.6 billion today, according to data from YCharts.Advertisement

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