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As the end of the year approaches, people are beginning to think about the tax consequences of their investment holdings.
With the oil trade gaining momentum after hitting a low earlier this year, many have looked to exchange traded funds as a way to play market moves, and one recently launched oil ETF stands out for investors seeking to simplify tax headaches.
The relatively new ProShares K-1 Free Crude Oil Strategy ETF (BATS: OILK) is an actively managed fund that provides exposure to the West Texas Intermediate crude oil futures market.
However, unlike other oil futures-backed ETFs, OILK will gain exposure to WTI crude oil futures through its ProShares Cayman Crude Oil Strategy Portfolio, a wholly-owned subsidiary of the fund. Since OILK is not structured as a commodities partnership that directly utilizes futures contracts, the new active ETF will not require investors to fill out the troublesome K-1 form.
“Many investors want to invest in crude oil with the convenience of an ETF, but all other crude oil ETFs involve complicated tax reporting,” Michael L. Sapir, co-founder and CEO of ProShares Advisors, said. “OILK is the only U.S. ETF that lets investors get crude oil exposure but skip the K-1 tax form.”
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While it may be fun to play these types of market moves in commodities, investors will have to deal with the slightly different taxes associated with the investments.
Commodities ETFs and other funds that use futures contracts to gain exposure to a market are structured as limited partnerships. Consequently, investors have to fill out a Schedule K-1 instead of Form 1099, and they may incur Unrelated Business Taxable Income (UBTI), which could be taxable in an IRA. However, most ETFs provide K-1s in a timely manner and typically do not generate UBTIs.
WTI crude oil prices have strengthened since the $26.21 per barrel low in February to $43.22 per barrel. However, oil futures remain depressed on concerns over the ongoing high output from the Organization of Petroleum Exporting Countries, which hit another record.
OPEC said output rose to 33.64 million barrels per day last month, or up 240,000 barrels per day from September, reports Ethan Lou for Reuters.
For more information on ETFs, visit our ETF 101 category.
This article was provided by our partners at ETFTrends.