RobinHood Users Double Holdings of Oil ETF Despite Ugly Market

This fund, which is primarily owned by retail investors, could be worth less than nothing soon as did oil prices.

Despite oil prices crashing into negative territory for the first time in history, Robinhood users have nearly doubled their holdings in United States Oil Fund LP USO, the largest oil-related exchange-traded fund.

According to RobinTrack, a site specializing in spotting trends on the free stock-trading app, the number of investors piling into the relatively plain-vanilla fund that offers exposure to oil fluctuations spiked to 152,073. This figure reflects an increase by more than 50,000 from Monday and 90,000 from the end of last week.

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At glance, the uptick shows investors are seemingly unfazed by the selloff triggered by heightened fears that coronavirus shutdown could last months and hurts demand for fuel further. However, this fund, which is primarily owned by retail investors, could be soon worth less than nothing while the dummies are betting on oil prices moving higher over time without fully understanding the dynamics in the commodity market.

The US$4.1 billion fund already slumped more than 30 percent to a record low on Tuesday as West Texas Intermediate contracts for May delivery made an unprecedented drop below zero. On a year-to-date basis, the shares have lost nearly 80 of their value amid a worsening global oil glut.

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Even before the virus spread, oil markets were slammed by the Saudi Arabia-Russia price war that is flooding markets with extra supply.

USO revamps structure

The fund operator made multiple changes to the USO structure in an effort to stave off additional losses. These changes include allowing the fund to invest in varying and longer-dated oil futures contracts, abandoning a pre-set strategy that implies having its most exposure to the front-month contract.

Further, the largest oil-related exchange-traded fund announced today a planned reverse stock split that will take effect on April 28. The move comes as shares sagged so much that the New York Stock Exchange could threaten soon to drop the stock from its listings.

USO said that it would grant shareholders one share for every eight currently outstanding.

Robinhood has customers with more than 10 million accounts, and a fair number of them were frustrated with trying to figure out how they fared during the first week of March 2020. Clients have complained about not having access to their accounts and having long wait times for customer service.

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