Why Commodity Equity ETFs Are Making a Comeback

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:

• ALPS ETF Trusts Jefferies TR/J CRB Global Equity Index Fund (NYSEArca: CRBA)
• Market Vectors Agribusiness (NYSEArca: MOO)
• Market Vectors RVE Hard Assets Producers (NYSEArca: HAP)
  
• SPDR S&P Metals & Mining (NYSEArca: XME)

Comments

[Mad Hedge F...:]

vhi . It all leaves me wondering, are there are snakes of a different variety lurking in the markets today? Many of the great long term plays I baled from on October 13 are suddenly a lot cheaper. The Canadian dollar (FXC) has plunged from $97.50 to $92, crude (USO) has backed off from $42 to $39, Baidu (BIDU) cratered from $440 to $355, and First Solar (FSLR) got whacked from $164 to $120. At these prices are they golden nuggets waiting to be scooped up from the ground? Or are they venomous vipers, coiled and waiting to strike an outreached hand? I vowed I would stay in cash for the rest of the year, until I lock in bonus payout. But if the best of breed investments drop much from here, I will be sorely tempted to nibble.

Nov 03 11:06 AM

[isaac the t...:]

Hey Tom,
Why not just one or two quality posts a day, rather than, to be polite, many shallow postings? Most people will read your stuff a few times and than realize its not worth the time. The only thing that you really get right it coming up with titles for the articles, but really the content ends there.

Nov 03 09:44 PM

[Bob Mayo:]

I wonder what the most direct equity play is if your goal is to track the price of energy commodities such as oil and gas?

Maybe oil royalty trusts, like those on Prudhoe Bay (BPT) or the Canadian Oil Sands (COS.TSE)? Or San Juan Basin (SJT) for natural gas? Do you think these approximate an investment in commodities better than, say, Oil Service (OIH) or other energy ETFs?

Nov 04 01:13 AM