Which Cotton ETF Is Right For You? BAL vs. CTNN

Simply put, cotton makes an appearance in the daily lives of almost every population around the globe, as this commodity is used in a wide variety of textile products. Since global consumption patterns dictate the fluffy commodity’s movements, cotton prices are known to exhibit volatility, making a trade in cotton a potentially lucrative opportunity for investors and traders alike. Additionally, cotton has been shown to maintain a fairly low correlation to other asset classes, such as stocks, giving investors yet another option to add meaningful diversification to their portfolios.

Thanks to the development of the exchange-traded fund industry, investors now have several ways to gain access to this fluffy commodity. Below, we outline the two most popular cotton ETFs and which one will fit your investment objectives [for more cotton news and analysis subscribe to our free newsletter].

Dow Jones-UBS Cotton Total Return Sub-Index ETN (BAL)

Quick Stats (9/28/2012)

Barclays iPath’s BAL is by far the largest and most popular cotton ETP available on the market, offering investors exposure to the soft commodity through the use of futures contracts. Since inception in 2008, the fund has amassed nearly $33 million in total assets under management, while also maintaining a relatively high trading volume of 21,000 shares a day on average. The cleverly-named fund provides exposure to cotton prices by tracking an index that consists of only one futures contract on cotton. It is important to note however, that BAL is structured as an exchange-traded note, meaning investors will be exposed to the potential credit risk of the issuing  institution.

BAL is Right for You if: You are an active trader seeking to either speculate on cotton’s movements or quickly execute positions in the commodity. 

Pure Beta Cotton ETN (CTNN)

Quick Stats (9/28/2012)

CTNN is another popular cotton exchange-traded product available on the market, offering investors exposure to cotton prices through the futures market, but with a slight twist. Unlike BAL which rolls its holdings on a monthly basis, CTNN does not roll exposure on a predetermined schedule; the roll timing is based on a proprietary “Pure Beta” methodology designed to reduce the impact of contango or backwardation on returns. This is perhaps the fund’s most alluring feature, considering how both of these futures trading nuances can make a devastating impact on bottom line returns. Like BAL however, CTNN is also structured as an exchange-traded note, meaning that investors will be exposed to the potential credit risk of the issuing institution.

CTNN is Right for You if: You are an investor looking to achieve cotton futures exposure, but want a methodology that helps avoid the adverse affects of contango. 

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Disclosure: No positions at time of writing.

About Daniela Pylypczak

Daniela Pylypczak-Wasylyszyn is a regular contributor to CommodityHQ.com, where she primarily focuses on commodity producers equities. She is also an analyst for ETFdb.com, where she contributes articles and analysis each week. Since joining the team in 2011, Daniela has quickly grown to be one of the most widely-followed authors in the industry. Her articles are syndicated in a number of online publications, including Financial Advisor Magazine, Fidelity.com, and Yahoo! Finance. Daniela is also a contributor for TraderHQ.com and Dividend.com. Daniela graduated from DePaul University with a bachelor’s degree in finance and economics.
This entry was posted in Agriculture, Asset Allocation, Commodity ETF Analysis, Commodity ETFs, Commodity Futures, Cotton and tagged , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

One Response to “Which Cotton ETF Is Right For You? BAL vs. CTNN”

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