John Love is the President and CEO of USCF Investments, an innovative firm with a history in commodities funds. He is responsible for company strategy and overseeing the administration of its 15 Exchange Traded Products (ETPs), and the company manages over $3 billion in assets from its headquarters in Walnut Creek, California. Below, John gives his expert insight into ETPs and commodity trading.
What types of commodity ETPs are there and what is the difference between them?
A primary distinction is whether a commodity ETP invests in a single commodity, a sector, or broad commodities in general. There are times when you might buy Apple stock, you might buy a tech fund, or you might buy the S&P. The same is true with commodities – investors just have to decide if they want to take a concentrated position or make a long-term investment allocation to the space. Many commodity ETPs have been structured as partnerships and trusts which results in investors getting a K-1 tax form instead of a 1099. While there are advantages and disadvantages to this tax treatment, investors generally don’t like K-1s. Newer commodity ETPs have been able to take advantage of new structures, allowing them to issue 1099s, like an equity fund.
What are the types of risks that you advise on when it comes to commodity trading given its speculative nature?
Surprisingly, a broad commodity basket that doesn’t use leverage has long-term risk similar to equities, and commodities are not correlated with stocks and bonds. So, commodities can lower total portfolio risk. Of course, any investment has idiosyncratic risks, so we encourage investors to read the prospectuses. In particular with commodities, understand the impact of “roll yield” and with debt-backed instruments (like Exchange Traded Notes), investors should evaluate counterparty risk.
Have there been any notable changes in the oil sector that have influenced commodity trading in this area?
Enough to write a book about. The oil sector has been exciting and important since the late 1800s, but the last five years have been particularly volatile as global dynamics shift. The US has increased production dramatically and is set to become a net exporter. That’s had a major impact on global markets and stirred up decades of OPEC hegemony. Geopolitics have also kept oil traders on their feet with ongoing strife in Libya, Venezuela, and international pressure on Iran, just to name a few.
Have there been any recent exciting developments at USCF that you can share with us?
I can only be vague. We see ourselves as innovators, and we’re currently working on a long-term project that ties in with how we see the investment world evolving over the next decade. It may come to nothing, or it may be transformative. Beyond that, we’re always exploring new fund ideas. Please follow us on social media so you know when we’re ready to change the world.