I do agree with the implied message of your post, that I need to look carefully at UCO and understand better how they mimic 2X that Dow Jones Index, and I need to better understand what that DJ index itself is.
Good points. Let me look into it.[/quote]
I actually had no implied message. With the current credit bubble bursting, I’ve been conditioned to question anything that claims to beat an index long term with the exception of Berkshire and a few like it.
In my simple mind, the only way the fund can accomplish this is either leverage or hedge. Leverage increases you gains when you win, but also increases your losses when you loose. Hedging when done right protects you against loss, but it comes at a price. You must use some capital to bet the other way, which would lessen your gain compared to “all in”.
Also, the maintenance cost of “rolling” futures should be higher than a fund that holds equity and only adjust to reflect composition change in the index it tracks. The fund has to continuously buy futures contracts, and sell or collect on the matured contract. Gains – losses will also be continuously calculated and any tax burden will be passed to the individual investor.
Still, a rolling fund like this seems to be the only way for an individual to bet on commodities without being a day trader. Without knowing more, I would lean towards a “vanilla” tracking fund without any “multipliers”.
Very cool information. Thanks again for educating the list (and me in particular)
