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Dodge The Pesky K-1 With This New Oil ETF

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Dodge The Pesky K-1 With This New Oil ETF

Exchange-traded products have made commodities investing available to the masses, and that is great. What is not so great? The pesky K-1 tax forms that accompany those investments come tax season.

A new exchange-traded fund from ProShares looks to ameliorate that problem, at least for those investors seeking crude oil exposure.

The actively managed ProShares K-1 Free Crude Oil Strategy ETF (BATS: OILK) debuted Wednesday. OILK is the latest in ProShares growing lineup of traditional, non-leveraged ETFs. The Maryland-based firm is the largest issuer of inverse and leveraged ETFs.

Welcome, OILK!

“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,” according to a statement issued by ProShares.

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Beyond not subjecting investors to the K-1 tax form, OILK looks to hang its hat on another advantage over traditional oil ETFs by limiting the pinch of rolling futures contracts, which can expose investors to higher costs.

“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),” added ProShares.

“When rolling futures contracts, there is a chance that contango can negatively affect the performance of the fund – contango occurs when later-dated contracts cost more than near-term contracts, which results in a negative roll yield, so the ETF would essentially sell low and buy high during each roll,” according to ETF Trends.

OILK will hold the West Texas Intermediate contracts with the three nearest expiration dates.

The new ETF charges 0.65 percent per year, or $65 on a $10,000 investment.

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