Interview Highlights

Tell us about USCF.
USCF is an innovative ETF company; our history is in commodities funds.  We were just here ringing the bell for the 10 year anniversary of the United States Oil Fund {USO}.  We’ve got 11 commodity ETFs and 1 equity ETF and we’re looking at other possible spaces to innovate into.

 

We’re here celebrating the 10 year anniversary of USO. How did it all begin?
It all began about 12 years ago.  Our founder Nicholas Gerber had the idea to do a commodity basket fund, or some sort of global macro fund… As he began to researchand explore issues, and work with partners, we focused down on crude oil as probably the best place to start.  After going through the process of dealing with the SEC and various regulators, we put the fund together – listed April 10th 2006 – and it was a success almost right out of the gate; so it’s been terrific. 

 

Do you have any asset growth in mind?
It’s hard to say right now.  We’ve had tremendous inflows over the last 2 years.  Coincidentally with the crash in oil prices the fund has tended to get assets in as prices go down.  It’s been an interesting 2 years.  I think the volatility has attracted a lot of traders, a lot of hedge funds, things like that.

 

Why do investors hold oil in their portfolios?
Oil is in the news – obviously – quite a bit and when you have things happen las we’ve had in the past couple of years, it’s a very exciting time for oil.  Oil is one of the most important commodities in the world if not THE most important commodity in the world.  It’s one of the most actively traded. 

 

Let’s go beyond USO.  Tell me about other products and asset classes.
USCF, like I said, we have 11 commodity funds, we have 8 single commodity energy funds.  So in addition to USO we have a natural gas fund {UNG}...gasoline…heating oil.  We have a Brent oil fund, one short oil fund.  And we have one oil and natural gas product that track the front of the futures curve rather than just one contract, which is sort of an alternative way to play the market. 

We also have a broad basket commodity index {USCI} which is – invests – the universe is 27 commodities – it’s equally weighted, it rebalances monthly, so you get the diversification that you might not get with some other indexes that are heavily weighted towards oil or something else like that.

 

Let’s discuss the various benchmarks for the price of oil: West Texas Intermediate, Brent Crude Oil, and NYMEX. Help us understand the differences between these various yardsticks for crude oil's performance.
Sure.  The primary benchmark in the U.S. is WTI – West Texas Intermediate Crude – which trades – the physical trades out of Cushing, Oklahoma – and that’s the benchmark for the U.S.  It’s becoming even more of a global benchmark with the exports that have started this year.

The Brent contract out of the North Sea – or the Brent Physical out of the North Sea – is also been more of a global benchmark.  It’s been exposed to events in the Middle East…whereas WTI in the U.S. would be exposed to fundamentals in the U.S. We had a backlog at Cushing about 3 years ago.  There was a big price differential between WTI and Brent now that’s come back in.  But those are probably the two major benchmarks – typically when you see crude quoted it’s WTI U.S. unless it’s quoted in our press.  With Brent, it’s also quoted quite frequently and it’s quoted internationally quite a bit as well.

Of course there are other weights around the world: there’s Mexican Maya… there’s Canadian Crude…Dubai…Singapore…you name it…there’s grades everywhere.

 

Which contracts are USO connected to?
Yes.  USO trades the WTI contract, which is the U.S. benchmark.  Though pretty much when you’re looking at the newspaper – the top of the Wall Street Journal – here’s what the oil prices are doing, here’s where it’s trading… USO is tracking that benchmark.

 

Any reason why people sometimes overlook commodities?
I think people are scared of commodities just because of stories they’ve heard in the past.  It’s an esoteric asset class; people don’t always know that much about it, even though they use commodities every day.  They know more about the companies they use. 

That’s why we have the tactical products if you want to trade those markets, and you do follow those markets.  And we’ve got the broad commodities basket if you’re just looking for an allocation. You want the diversification of commodities but you’re not sure where you should be – we’ve got the broad basket to kind of represent the whole asset class.

 

Why have investors not used commodities in the past?
Historically it’s been hard to get into commodities.  Before commodities ETFs existed, before USO was launched, you had to open a futures account, you had to deal with margin, you had to deal with rolling your positions.  There were other ways to play commodities but they might not have had perfect exposure to the underlying commodity, like trading energy firms – things like that.

There were a lot of things available to institutional investors, but for the average investor, there’s really not an easy way to trade crude, or gold, or that kind of thing.  USO basically made it available to them.

 

How does it feel to celebrate this anniversary at the NYSE?
It feels great.  It was an honor to be up on the podium, and just to be on the floor, you can really feel the energy, and we brought the whole team out – as many people as we could – just to stand up there with us, and celebrate as our team this great 10 year anniversary.

 

What are some of the changes in the investment landscape that you’ve observed in the last decade?
Definitely the explosion of ETFs, or alternative ETFs.  When we launched USO, I believe we were about the 350th ETF out there and we were the 3rd commodity ETF.  Since then there’s over 2,000 ETFs.  There’s just been an explosion of that – it’s been great for the investor to have so many choices and access to low cost funds that trade different asset classes and give you access to things that weren’t there for the investor before.  So it’s really opened up the world of investing way more than it was 10 years ago.