Commodities ETFs vs. ETNs: Which are Better?

Commodities have seen there fair share of market volatility for the year, and ETFs and ETNs have gone along for the ride.

At one time this sector was considered a safe haven of sorts, with ETFs and ETNs giving investors a diversified and safe entrance to commodities exposure, at a reasonable price without physical delivery. The recent slip of crude oil prices has affected nearly every commodities-focused fund and note, even those with leveraged exposure, reports Ron DeLegge for ETF Guide.

So, if you want the exposure to commodities is it better to invest with an ETF or an ETN? The answer lies in the product structure of each of these tools. For example, many commodities ETFs do not own the physical commodity; rather, they own the futures or options on them, so their tax treatment differs from a stock or an ETF.

The tax treatment of ETNs is up in the air for now, but some commodity ETFs have their own tax issues investors need to be aware of. Tax time is just around the corner - don’t get caught off guard.

There is no clear-cut answer as to which type of fund is superior, and as an investor there is homework and research to be done to figure out which tool will fit into your portfolio better.

• iShares S&P GSCI Commodity Indexed Trust (GSG): down 44.9% year-to-date

• iPath S&P GSCI Total Return Index ETN (GSP): down 46.1% year-to-date

Comments

[danwalk:]

I find it interesting that an author who poses a question in the title of his article does not seem to answer it in his analysis. While I appreciate links to the author's website, it would be much more helpful to see actual discussion in the Seeking Alpha article. Two charts and a sea of links do not constitute analysis for this reader. Furthermore, this entry ignores completely the substantial differences in the various indices that track commodities. The differences between each index are far from trivial.

2008 Dec 17 08:42 AM

[fmccraw:]

good point, danwalk - i was expecting to find at lease a little discussion of the credit risks between ETFs and ETNs, in addition to any differences in their underlying investment vehicles

2008 Dec 17 09:44 AM

[mangy cat:]

reading danwalk, was going to put fmccraw's point

which i have been stressing all year, even before the lehhman opta default

march 7!!:

PowerShares DB Agriculture ETF Forced to Buy Alternative Futures
when my broker suggested i take a position in dba
my rejoinder was:
. . .
b) dba is too concentrated, personally would go for rja etn (more confidence in swedish export bank being there at the end, than barclays and now lehman)

that's not foresight, it was merely common sense

2008 Dec 17 06:28 PM