Long-Only Commodity ETFs vs Futures- April 2013

We’ve made no secret that we think Commodity ETFs are a poor choice for investors (see Commodity ETFs Suck – 2012 Edition), and the underperformance of those ETFs compared to futures contracts in 2011 and 2012 bore that out. But so far, 2013 has not matched our expectations, with commodity ETFs ahead of the Dec futures performance through the end of April.

This month the ETF advantage shrank a bit for crude oil and corn, but expanded for natural gas. UNG has had a great year, returning more than 24% since the beginning of the year (Disclaimer: past performance is not necessarily indicative of future results). But that’s just one year since it was declared the worst ETF investment of all time after it had lost more than 96% since inception. The ETF is now outperforming the rallying market it aims to track, leaving us to admit that even a blind squirrel finds the nut sometimes.

Do we think the commodity ETFs will continue to outperform a simple strategy of buying and rolling the December contract annually?  No.  Maybe they outperform for a month, a quarter, or even a year at some point (and this could very well be one of those years). But they will still be rolling their positions many times more than a single annual roll, creating a drag in the form of cost and the roll yield.

Stay tuned.

Disclaimer: Past performance is not necessarily indicative of future results.

 

2 comments

  1. So, just curious… what if you traded commodities and the underlying ETF as a pair trade? In other words, buy the Natural Gas December contract, and short UNG at the same time (same dollar amount). What would the equity curve look like through the year? Theory has it you will always win in the long run since the ETF is rolling positions while you are holding a long contract. The short position is there just to even out the curve.

  2. Dont forget there are various significant costs associated with maintaining a short ETF position for many months. Notably funding costs, stock borrowing and bid ask. Also several of the commodity ETFs have fairly low volume.

    Attain are doing a good study on the (general) under performance of commodity ETFs, but the actual trade isnt quite as simple as it may look.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.