Continuing what has so far been 2006’s exchange traded fund theme – commodities – Victoria Bay Asset Management launched the long-awaited United States Oil Fund on the American Stock Exchange this morning. The new fund, Victoria Bay’s first, is the first in the U.S. to track the price of oil, following in the footsteps of two London ETFs launched last year. Unlike the commodity ETF world’s heaviest hitter so far, State Street Global Advisors’ StreetTRACKS Gold Shares, the new fund – technically not an ETF but a commodity pool like Deutsche Bank‘s DB Commodity Index Tracking Fund – will not hold the physical commodity, but instead will trade West Texas Intermediate light, sweet crude contracts on the New York Mercantile Exchange to track the price of oil.
“This is no bunt,” the Amex CEO told the floor. “This is a homerun.” The hordes surrounding the Bear Hunter post, waiting to get a first crack at the first oil ETF in the U.S. like the crowd at a ballpark jockeying for the best spot to catch the homerun ball, belied any accusations of hyperbole.
Nearly 4 million shares of the fund changed hands on Monday, making it the busiest ETF launch in the Amex’s history. Victoria Bay said that it had created $14 million worth of shares on Friday, though redemptions on Monday brought that figure down to about $7 million.
More than 2 million shares changed hands in its first two hours of trading.
The American Stock Exchange, which created the first ETF in 1993, currently lists163 exchange-traded funds.
“The fund is intended to give investors exposure to the total return of crude oil,” USO’s portfolio manager, John Hyland, told InstitutionalInvestor.com, tracking the percentage movements of oil prices, rather than the price of, for example, a barrel of oil, as the gold ETFs track a the price of a certain number of ounces of gold. Hyland notes that, “It remains to be seen how much long interest we see versus how much short interest we see.” He declined to speculate on whether interest in the fund would be primarily retail or institutional.
Dan Culloden, an ETF analyst at Morningstar, says that, while there will be intense interest, investors should think carefully before buying USO. “It would be foolhardy to rush in,” he said.
The fund will have an initial management fee of 50 basis points, likely to decline when the fund garners $1 billion in assets. USO’s prospectus also estimates 35 bps in annual trading costs. Those expenses are expected to be offset by the interest paid on the collateral, short-term Treasury bills, with any additional interest added to the fund’s assets.