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Overcoming Bias Commenter's avatar

I think the advantage is that the fund doesn't have to invest in any oil! It just has to arrange that the amount invested in the "up" and "down" funds is roughly equal, and then they can put the money into government bonds and make their profit. They could create funds on anything in the same way.

One problem with USO (a traditional oil based ETF) is there is some question about whether the fund is putting its money into oil in such a way that the fund price will fully reflect the oil price. It always bothers me that USO's price doesn't match what is reported in the news as "the price of oil". The Macro shares do a good job of matching that value.

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Overcoming Bias Commenter's avatar

Hal: I presume that as oil approaches $120, they will introduce a new pair of securities that add up to $200 or $240, and sensible investors will sell the original ones and buy the new ones. This is inconvenient in roughly the same way oil futures investors often want to roll over their investment to contracts with settlement dates further in the future.They hint that the pairing let's them add t-bill or similar returns to what you'd get if you just bought the oil (I don't know whether USO provides these added t-bill returns; futures brokers have created some ability to get those t-bill returns, but often not in a convenient way or in a way a small investor could use).ETFs can be sold short under the same rules as regular stocks (which means the most liquid ETFs can almost always be sold short, and with less liquid ones it can be hard to predict whether your broker will be able to borrow the shares needed). For some good and some poor reasons, many investors are reluctant to sell short securities that have no predictable maximum price. Macro shares provide a clear limit to the risk.

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