April 2020 – Exchange-Traded Funds (ETF)s are popular investment products that allow consumers to invest in a basket of stocks that capture certain markets or industries. When purchased knowledgeably, they can help investors diversify their portfolios or buy into an industry they believe in.
ETFs also create risk by making it more difficult to see what you are invested in – large bundles of stocks represented by a single symbol can hide the fact that you are overconcentrated in one industry or that the assets included are riskier than you want. This kind of risk has come into sharp focus for retail investors who have purchased the United States Oil Fund (USO) ETF.
USO tracks the oil futures market, designed to be used by professional traders and institutional investors. It is not recommended for the typical main street investor for many reasons:
- USO invests in oil futures contracts, not crude oil itself, a common and detrimental misunderstanding
- The volatility and complexity of the oil futures market is beyond the scope of an average investor to anticipate or navigate
- USO is not intended to be a “buy and hold” investment. In fact, USO has declined over 65% year-to-date
Consider this: if you wanted to invest directly in oil futures contracts, you would have to undertake significant steps to do so, such as opening a specific type of account and engaging a financial advisor with additional FINRA licenses. Because USO is an ETF, it circumvents these requirements, but the fundamental investment is the same.
Despite the complexity of the investment, inattentive Investment Advisors have still recommended USO to their retail clients without fully disclosing the risk or educating the investor about the product. That failure has left clients with significant losses in this period of high volatility and crashing markets.
Did you lose money in USO?
If you have lost money by investing in the United States Oil Fund (USO) exchange-traded fund you may have a case against your financial advisor for Stockbroker Negligence, or Stockbroker Breach of Fiduciary Duty. If you can answer NO to these questions, then your advisor was not doing their job.
- Did your financial advisor warn you that this product was not recommended for the retail investor?
- Did your financial advisor inform you that this was not a “buy and hold” asset and that different investing techniques and attention were required?
- Did your advisor clearly communicate that the ETF invested in oil futures contracts ?
Contact the Law Office of Jared A. Rose to find out if we can help you recover losses due to stockbroker or brokerage firm misconduct.