Hi WorldTrader,

3858S is not a tracker but a certificate.

It is based on Brent Crude Oil futures contract that have the earliest expiration date. That means that each month when the contract expires, the emitter need to roll to another contract. This creates additional costs and the value of 3858S needs to take that into account. That's why every month the parity between the certificate and the Brent Crude Oil futures contract is decreasing.

Initailly (on June 2005), parity was 1. The price of the Brent Barrel was 52$ and the price of the certificate was 52€. 18 month later the parity is at 0.79 and it will continue to decrease every month. That's why for a same Brent Barrel price, the certificate had more value 2 month ago than now.

You should only buy 3858S for short term investement (probably less than a month).

 I hope this answers your question !

Cheers,

Hello PopStar, 

Thank you for your fast answer.

I now understand why I lost a couple of bucks... 

However, I can't understand why the costs you are talking about are so high. And I checked before I bought the certificate, i remember that fees should not be more than 1% a year.

Have you more details about that.

 Cheers,

Hi,

Those certificates are typically based on nearby future contracts. When those contracts expires they need to be replaced by contracts with a longer-dated contract (typically a contract with the nearest delivery).

The problem with this is not the cost to change from one contract to another (as you said this cost is usualy quite low). However, longer-dated contract are more expesive than the contract that is expiring because they include a cost of carry (e.g. waregousing fees). This is why the value of the tracker decrease with time (It is called "Contango" : http://en.wikipedia.org/wiki/Contango).

One example :

Let's imagine on December 15th a barrel costs 60$ and the value of our certificate is also 60$. The future contracts on which our certificates are based are expiring so we need to replace them by future contracts that expires in January.

But because of cost of carry those future contract are sold at 61$.

If I have 10.000 future contracts expiring in December and I sell them at 60$, I will only be able to buy 9836 future contracts expiring in January. So now we only have 0.984 barrels per certificates. When a barrel costs 60$ the value of our certiface is 59.04$

That's exactly what is happening with 3858S. When SG emitted it, one certificate has the value of 1 barrel, now, one certificate correspond to 0.79 barrel... And it will continue to decrease evey month.

I hope this explnanation is clear ;)
Cheers,