Each month, we write a post, crunch the data, and see how commodity ETF’s (path 1) are performing against the commodity futures markets they are supposed to be tracking, under the assumption that investors would be better off just buying the December futures contract annually (path 2) instead of getting exposure through the ETF’s. This year has been closer than normal in the energy markets, while investors were much better off going the futures route in other markets.
But after looking at the final numbers across all of these commodities… an investor looking for the best commodity exposure might say that losing -14.00% (via Path 2 – Futures) versus -16.67% (via Path 1 – ETF’s) still has a bit of a problem – they are both losers (Disclaimer: past performance is not necessarily indicative of future results). It’s all fine and good to lose less, but what about not losing at all?
Now, nobody can promise there won’t be losing years – but the commodity exposure most investors have, does have a promise – the promise to have losing years when commodities are falling. They only make money when the commodities they track are going up (and maybe not even then with the problems of roll yield), and will (by definition) lose money when the commodity markets are falling. Now, more than a few people think that is rather limiting, and think a better path is to be able to make money in commodities whether they go up or down, whether commodities are rising or falling.
These long/short commodity (Path 3) folks happen to live in the managed futures world, and are usually called Agriculture Traders (download our free whitepaper detailing the approach of Ag Traders to complex and sophisticated grain markets). And there happens to be an index tracking their performance, the BarclayHedge Ag Trader Index . So without further ado, how have the long/short commodity traders (the Ag Traders) performed during the down year for commodities? They haven’t knocked the cover off the ball, but up +2.67% so far in 2013 is a heck of a lot better than down double digits (Disclaimer: past performance is not necessarily indicative of future results). A long/short commodity investor we know describes it like this… You wouldn’t buy a car that only goes forwards, so why invest in something which has to have markets only go up.
(Disclaimer: Past performance is not necessarily indicative of future results)
So which path is best for you? The risk to investing in a long/short commodity manager is that they won’t capture the full upside when and if commodity markets do rally higher, as there is no guarantee they will capture the up moves, or the down moves for that matter. But we would sure prefer the flexibility and possibility of capturing both sides than the certainty of capturing one side.
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, 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.