As the commodity markets get a little more tricky to navigate in the face of regulations, equity-based commodity ETFs could be one of the solutions.
As the CFTC mulls over position limits for futures-based commodity ETFs, many providers are launching commodity equity funds to help sidestep the issue altogether.
Cinthia Murphy for Index Universe lays out the facts:
- It’s not a one-to-one relationship. The long-term correlation between equities and futures is good, but not perfect.
- Investing in commodities-linked equities can be more volatile than tracking spot prices of commodities, warns Ed Lopez, product manager for Van Eck. “Any small movement in spot prices can actually affect producers greatly,” he says.
- Futures-based commodity index products may, over time, demonstrate significant tracking error against spot indexes because of the influence of contango, which is when the futures prices is above the expected future spot price.
- Equities are performing better than futures this year. Many investors may be a little skittish of futures while the CFTC officially decides what the limits will be.
Some equities-based commodity ETFs: