What Are Cotton ETFs?
Exchange-traded products (a term that covers both ETFs and ETNs) are simple, low maintenance opportunities to gain exposure to cotton prices. Cotton is included in a number of broad-based commodity ETPs that offer exposure to baskets of natural resources, and U.S. investors also have a pure play option available. The iPath Dow Jones-UBS Cotton Total Return ETN (BAL) is linked to an index comprised of cotton futures contracts.
Investors should be aware that BAL is not designed to replicate spot cotton prices, but rather the performance of a futures-based strategy. That means that fund returns will be subject to the slope of the futures curve and prevailing interest rates. Also, it should be noted that BAL is an ETN, a debt instrument issued by a financial institution.
European investors have more options ETF available for cotton exposure, as ETF Securities offers short and leveraged cotton products as well.
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