The above chart shows the year to date performance of two different "Double Long" Oil investments you could have made to speculate on the price of oil. Clearly investments that have the seemingly same objective, doubling the performance of an investment in oil futures contracts. Regardless of what one feels about the direction of oil, clearly there is a dramatic dispersion in the performance.
Clearly Ultra DJ-AIG Crude Oil (UCO) and PowerShares DB Crude Oil Double Long have similar names. The difference is in the "roll method" the funds use in the futures market and the leverage methods. The DB has a proprietary optimizion method that attempts to mitigate the effects of contango by buying the contracts that cost the least per month to hold. The AIG index lacks this. Futher, the DB index is leveraged monthly vs. daily. Proshares has a good explaination of this issue on there site.
Bottom line stick with investments you understand or seek advice of someone who does understand. Most people don't understand contango or the way daily compounding effects long term returns. People who lost 40% in UCO probably had no idea what they were getting involved with.
*This blog is not a suggestion to buy or sell any security.
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