The new fund, dubbed ProShares K‑1 Free Crude Oil Strategy ETF (BATS:OILK) is the only crude oil-focused ETF that is not a commodities partnership. Therefore, it does not deliver K‑1 tax forms to shareholders.
From the press release:
“Many investors want to invest in crude oil with the convenience of an ETF, but all other crude oil ETFs involve complicated tax reporting,” said Michael L. Sapir, co‑founder and CEO of ProShares Advisors, LLC, the advisor to ProShares. “OILK is the only U.S. ETF that lets investors get crude oil exposure but skip the K‑1 tax form.”
Instead of being organized as a partnership, OILK is an actively managed ETF that selectively invests in oil futures:
OILK is registered under the Investment Company Act of 1940, unlike other crude oil ETFs, which are commodities partnerships. Like other 1940 Act funds, OILK will provide shareholder tax reporting information on 1099 forms, not the K‑1 form issued by partnerships.
This unique structure could even allow OILK to outperform traditional index-based oil funds, assuming that management makes the right moves at the right time:
OILK seeks to provide total return by providing exposure to the West Texas Intermediate (“WTI”) crude oil futures market in an actively managed ETF. The fund’s strategy seeks to outperform certain index‑based strategies by actively managing the rolling of crude oil futures contracts. Rolling means selling a futures contract as it nears its expiration date and replacing it with a new one that has a later expiration date. Managing the rolling of futures contracts can potentially mitigate losses from contango (when new contracts are more expensive than expiring ones) and help the fund benefit from backwardation (when new contracts are less expensive than expiring ones).
This interesting offering is certainly one for commodity investors to watch. We’ll be sure to have more coverage on this fund once it gets some initial assets and trading history under its belt.