Every month, we see if buying and holding a couple of commodity markets over the course of a year are doing better than investing in the ETF’s that supposedly track them. Typically, the ETF’s underperform a simple strategy of buying the December futures contract and rolling it annually. Well, the numbers are in for the final tally in 2013, and it looks like futures edged out ETF’s on average by a little more than 1%, although there was a wide dispersion of results with the ETF 7% better in the case of Natural Gas and 8.5% worse in the case of Wheat. (Disclaimer: Past performance is not necessarily indicative of future results).
(Disclaimer: Past performance is not necessarily indicative of future results)
For many investors, however; the comparison of how to buy commodity exposure is becoming a moot point after reading article upon article this year about the end of the commodity “Super Cycle.” The problem is the nature of these types of investments , which enable them to make money only when prices rise (and then only after paying the roll yield if there is one). You can see that it wasn’t a profitable venture investing in commodities rising in 2013, with a -12.43% average return over six commodity markets, and a -13.64% average return over six commodity ETF’s nothing to get too excited about.
Which leads us to the widely known secret that many are still unaware of… there’s another way to invest in the commodity market. It’s a “Long/Short Strategy” which can profit from rising or falling commodity markets, and just happens to be a popular strategy in a subset of the Managed Futures space call Ag Trading. The BarclayHedge Ag Trader Index tracks these traders, and over the course of 2013, they managed to show a +2.90% return for the year while direct commodity exposure struggled. (Disclaimer: Past performance is not necessarily indicative of future results).
Could next year be different? Absolutely… Ag Traders will have losing months and years just like any other investment, and they may not catch a huge up trend in commodities like the direct exposure will. But better performance when commodities are falling sure seems to make up for any missed upside, in our opinion.
P.S. – Is a 2nd “super-cycle” just around the corner.
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.
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