The $3.2 billion U.S. Oil Fund ETF has had to reverse-split its shares 1 for 8 to boost its NAV.
Photo: Robyn Beck/Agence France-Presse/Getty ImagesAs oil prices plummeted in April, U.S. Oil Fund (USO) exchange-traded fund took it on the chin. And short-selling activity soared.
The $3.2 billion futures-based ETF saw shorting activity pick up after a lull in early April. USO ETF is down 83% for the year so far, through Friday. The benchmark crude-oil futures contract in New York is down 68%.
In response, the fund, after April 28’s close, executed a 1-for-8 reverse stock split, to reduce the number of shares outstanding and boost the net asset value per share. The fund has said it is trying to structure reasonably, given oil-market conditions.
Short sellers became much more active as crude-oil futures fell below $20 a barrel, says Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
According to S3 Partners, from Jan. 1 to Feb. 27, short sellers were steadily covering their exposure, buying to cover 13.68 million shares, or 45.29% of their total shares shorted. Between Feb. 27 and April 21 USO short sellers went into overdrive, tripling their shares shorted with an additional 49.46 million shares shorted.
The bearish trading in early April paid off with shorts earning $286.07 million in mark-to-market profits, a 110% return on an average short interest of $261 million, says Mr. Dusaniwsky.
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Many individual investors have been attracted to the low prices for crude-oil futures, and probably thought a crude-oil ETF would give them exposure to a rebound in price, says Patrick Armstrong, chief investment officer at Plurimi Investment Managers.
But this hasn’t been the case for many investors.
“The ‘roll cost’ is so prohibitive it is very difficult to make a positive return. The huge short interest in the ETN is also indicative of institutional investors going long a more efficient part of the curve, and shorting the inefficient USO,” says Mr. Armstrong.
The USO fund switched some of its holdings to longer-dated futures contracts on April 21.
Ms. Akhtar is a writer in London. She can be reached at reports@wsj.com.
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