ProShares has rolled out an actively managed oil exchange traded fund to help diminish the negative effects of a futures market in contango and remove the hassle of having to fill out a K-1 form come tax season.
On Wednesday, ProShares launched the ProShares K-1 Free Crude Oil Strategy ETF (OILK) . OILK has a 0.65% expense ratio.
OILK is an actively managed fund that provides exposure to the West Texas Intermediate crude oil futures market. Ryan Dofflemeyer, Portfolio Manager at Proshares, will manage the ETF.
The active oil ETF will try to outperform certain index-based strategies by actively managing the rolling of WTI crude oil futures contracts, according to a prospectus sheet.
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A commodity futures-based ETF rolls contracts when it sells a futures contract that is set to expire and replaces it with a new later-dated contract to avoid physical delivery of the commodity. However, when rolling futures contracts, there is a chance that contango can negatively affect the performance of the fund – contango occurs when later-dated contracts cost more than near-term contracts, which results in a negative roll yield, so the ETF would essentially sell low and buy high during each roll.
The WTI crude oil futures market is currently stuck in a state of contango, with November 2016 contracts hovering around $45.64 per barrel, compared to October 2017 contracts trading at $50.06 per barrel, according to the CME Group.
OILK will track WTI crude oil futures with the three nearest expiration dates, or the front, second and third month contracts, which may help diminish the negative effects of contango.
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Additionally, the new oil ETF will gain exposure to WTI crude oil futures through its ProShares Cayman Crude Oil Strategy Portfolio, a wholly-owned subsidiary of the fund. Since OILK is not structured as a commodities partnership that directly utilizes futures contracts, the new active ETF will not require investors to fill out a K-1 – most commodity futures-based ETFs require K-1s. Instead, investors would only need to fill out tax reporting information on 1099 forms.
“Many investors want to invest in crude oil with the convenience of an ETF, but all other crude oil ETFs involve complicated tax reporting,” Michael L. Sapir, co-founder and CEO of ProShares Advisors, said in a press release. “OILK is the only U.S. ETF that lets investors get crude oil exposure but skip the K-1 tax form.”
For more information on new fund products, visit our new ETFs category.