Careful with the Dollar ETF

In doing research for this afternoon's Barron's Online column, I found an article by Richard Bloch on Seeking Alpha. It tells us what we should have already known about the currency ETF - that conditions in the futures market make a difference to this ETF.   It is the same problem that the USO oil ETF faces with contango - or, higher priced later-dated futures contracts. Everytime the fund has to roll to the new month, investors lose value. That's one reason they created the USL version of the oil fund that seeks to mitigate the problem by using 12 months worth of contracts.

Anyway, this chart should drive home the point. The US dollar index has been steadily outperforming the dollar ETF for many months. For those who want to dig deeper, the trend before March 2008 was down - meaning the opposite. I'll leave it to you to figure out what the structure of the futures market was back then (contango, backwardation or something else).