Many investors have embraced the exchange-traded product structure as the preferred vehicle for accessing broad based commodity exposure. Investors have a whole host of options available to them, with some funds focusing in on specific commodity families, while other offerings employ unique methodologies to help fight the impacts of contango. One of the oldest ETPs offering broad exposure to the commodity market is the iShares GSCI Commodity-Indexed Trust Fund (GSG), which has amassed close to $1.5 billion in assets under management since its launch in the latter half of 2006 [also see Three Legendary Commodity Investors]. GSG is similar to other broad commodity ETPs in many ways, however, its product structure results in a unique risk/return profile that may attract some investors while potentially turning away other.
This past week was hectic to say the least, as major equities and commodities alike were battered and also boosted by news from the Euro zone. While it is nearly impossible to predict what the near term future holds for the euro zone, investors can be certain that more volatility is on the way, making commodity trading a lucrative, but risky opportunity. This week saw gold feature heavy movements as the precious metal has been semi-correlated to major equities, frustrating those who have long sought the metal as a safe haven asset. Oil, however, was the biggest story on the week; despite equities taking heavy hits through the middle of the week, oil charged upward as the price per barrel has its sights set on a firm $100/barrel [see also Beyond UNG: Three Intruiging ETFs To Play Natural Gas].
Energy prices managed to squeeze out relatively strong performances over the last week despite the chaos in Italy that rippled throughout the global financial markets. Crude oil resisted the downward pressure from intensifying anxiety over a debt crisis in Europe, and managed to head higher in recent sessions–with a brief detour on Wednesday. The following table shows the performance of energy exchange-traded products for the week ended November 10; note that these products utilize futures-based strategies, and as such may not reflect changes in spot commodity prices over this period:
Alternative energy investing has surged in popularity in recent years as our world has felt the effects of basing the majority of our economy off of a finite resource. Though crude oil and other fossil fuels will last us for the foreseeable future, there will come a time when our energy consumption will have to look to alternative, renewable resources. The investment thesis behind any of the several alternative energies can be thought of as a play against crude oil, or as one of a natural evolution that we will have to face sooner or later. The timeline for our fossil fuel addiction running dry varies across the board, but it is generally accepted that this issue won’t come to fruition anytime soon [see also Major Countries Burn Up Crude Reserves: Big Oil In Trouble?].
Like just about every other asset class, agricultural commodities have been on a wild ride over the last several trading sessions, fluctuating along with equity markets as investors have tried to evaluate the latest news out of Europe. The last week has generally been a strong stretch for agricultural and soft commodities, as a rally in stock markets and return to risky assets has created a wave of moderate optimism among investors. The following table shows the performance of several popular commodity exchange-traded products for the week ended November 8. It should be noted that each of the funds included below utilizes futures contracts to achieve its stated objectives; as such, returns may not be reflective of changes in spot prices:
Many investors looking to add broad-based commodity exposure to their portfolios, ranging from individuals to billion dollar hedge funds, have turned to ETFs as the most efficient vehicle for doing so. While the most popular products are generally those that have the longest operating history, more and more investors are turning to new products that are popping up as a tool for establishing exposure to this potentially promising–and risky–asset class. One of the more innovative commodity ETFs to debut in recent years is the United States Commodity Index Fund (USCI), which is the result of a collaboration between United States Commodity Funds, the firm behind the ultra-popular UNG and USO, and Summerhaven.