Skip to main content

Oil ETFs: 8 Ways to Invest in Black Gold

By U.S. News & World Report

Buying oil with ETFs.

Oil investing isn’t easy. If you believe in a company’s potential, you can easily invest directly by purchasing stock through a brokerage account or IRA. The most direct way to invest in oil, however, is futures, which can be far more volatile than stocks, and typically requires a lot more money to buy in. Thankfully, exchange-traded funds can help bridge the gap. While they’re far from perfect, one-for-one investments in oil, they provide investors with easy-to-purchase access to gains in black gold.

United States Oil Fund LP (ticker: USO)

At roughly $3 billion in assets under management, the USO is easily the largest ETF that’s directly tied to oil. In this case, USO attempts to track the spot price of West Texas Intermediate oil — a light, sweet crude oil delivered to Cushing, Oklahoma. It does so by investing in crude oil and oil-related futures contracts, forwards and swaps as a way to track the spot price. While USO is a popular proxy, its returns can be hampered by a phenomenon known as “contango,” in which it’s forced to sell current-month contracts for less than the worth of the next-month contracts it has to buy.

Expenses: 0.45 percent, or $45 annually for every $10,000 invested.

United States 12-Month Oil Fund (USL)

Like USO, USL is an investment in West Texas Intermediate light, sweet crude oil that uses futures contracts based on delivery to Cushing. However, instead of just investing in near-month futures like USO, USL invests in near-month futures, as well as futures from the next 11 months down the road, too. Why bother? By investing in 12 months’ worth of contracts, USL significantly minimizes the effects of contango. As a result, USL has outperformed USO in every year since its inception.

Expenses: 0.6 percent

PowerShares DB Oil Fund (DBO)

The DBO is another way to battle the evils of contango. This PowerShares fund invests in a single month’s WTI oil contract — but instead of automatically rolling over into the next-month contract like USO, it instead can roll over into any futures contract within the next 13 months. This not only helps minimize contango, but it allows DBO to take advantage of “backwardation” — essentially the opposite situation as contango, in which you gain from rolling over, selling more expensive expiring contracts for cheaper futures contracts.

Expenses: 0.78 percent (includes 3-basis-point estimated futures brokerage fee)

iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)

OIL isn’t actually an exchange-traded fund, but an exchange-traded note. Unlike an ETF, which actually holds something tangible, such as stocks or futures, an ETN is a basket of debt securities issued by a bank used to pay a return that mimics some sort of index. In this case, OIL mimics an investment in WTI futures, so you’re still tracking oil. As a note, you still face contango risk — and because OIL is an ETN, your investment also would be in jeopardy if the creditor — Barclays (BCS) — were to go under. On the (small) plus size, returns include interest from investment in some T-bills.

Expenses: 0.75 percent

iPath Pure Beta Crude Oil ETN (OLEM)

The inclusion of additional futures contracts helps USL’s returns dominate USO, and you see the same effect when it comes to OLEM versus its iPath brother, OIL. Whereas OIL merely tracks an investment in near-month contracts, OLEM’s index allows for rolling into futures contracts across a number of future months, which helps mitigate the effects of contango. Again, OLEM has outperformed OIL every year since inception in 2012. The downside to OLEM is thin volume of just a few thousand shares per day, and a mere $25 million or so in assets under management.

Expenses: 0.75 percent

United States Brent Oil Fund LP (BNO)

If you prefer something a little less “sweet,” the DBO provides access to near-month futures in Brent oil — a type of oil that’s taken from the North Sea and is both heavier (higher density to water) and less sweet (higher sulfur content) than WTI. The lighter and sweeter the crude, the easier it is to process, so WTI often is the favored type of oil, but supply-and-demand forces (such as growing stockpiles of U.S. oil pressuring WTI prices) means Brent can trade at a premium. That has been the case in 2016, with BNO outperforming USO 9 percent to -8 percent.

Expenses: 0.75 percent

VelocityShares 3x Long Crude Oil ETN/3x Inverse Crude Oil ETN (UWTI/DWTI)

These volatile funds aren’t for inexperienced traders. The UWTI provides 3x the daily returns of the S&P GSCI Crude Oil Index, while DWTI provides 3x short exposure. And that “daily” aspect is important to note, because the longer you hold one of these funds, the more their performance “wiggles” away from the benchmark. To wit, the aforementioned index is off 7 percent, but UWTI is off a whopping 48 percent — a loss of nearly 7x!

Expenses: 1.35 percent

More from U.S. News

10 Tips for Couples and Young Families to Build Wealth

Artificial Intelligence Stocks: 10 Companies Betting on AI

7 Global Goats That Could Bring Market Mayhem

Oil ETFs: 8 Ways to Invest in Black Gold originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
Read Next Story

Related News

Frustration grows in Venezuela as earthquake death toll reaches 1,430

Israel and Lebanon sign framework agreement with US in ‘first step’ toward peace, Rubio says

Trump-endorsed populist poised to become Colombia’s next president as rival challenges vote