by Jared Cummans
Statistics show that the vast majority of commodity investors come away actually losing money; this was especially true for 2011. This year was a rough one on commodities as global instability created volatile trading, resulting in most of this asset class losing money. But of course with big losers comes a great opportunity to buy in while a fund is still cheap. Though, it may also be that you simply want to stay away from some of these bad-performing funds to protect yourself from more losses. Whatever may be the case, we outline the five worst performing commodity ETPs of 2011. Note that the list is a bit modified in that we only chose one fund from each commodity type and did not include any funds that launched this year.
5. MLCX Grains Index TR ETN (GRU) -18%
This ETN offers exposure to futures contracts on corn, soybeans, soybean oil, and wheat. Corn and soybeans are two of the most actively traded commodities in the world, but their popularity was not able to save this fund. It would appear that wheat and soybeans were the culprit of GRU’s hefty losses, as corn had only mild losses on the overall year. One can likely attribute these losses to some of the odd weather patterns across the world this season, as a number of fields were destroyed by heavy rains, drought, or natural disasters. Mother nature did not cooperate with the agriculture sector, but that may make for an interesting buying opportunity for 2012.
4. Dow Jones-UBS Cotton Total Return Sub-Index ETN (BAL) -27%
Cotton enjoyed a massive 2010 and had gotten off to a strong start this year, with growth in Chinese consumption and inflationary concerns giving cotton prices a nice boost. But as the year progressed, cotton quickly headed south, as a combination of factors led to a sour year for the fluffy commodity. For starters, global consumption in 2011 was predicted to surge, but demand unexpectedly dropped and stockpiles soared. With bold predictions for this year’s cotton demand and 2010 ending with sky-high prices, a number of farmers all over the world scurried to plant more cotton to cash in on the trend, which turned into a nasty outcome when consumption eventually dropped. All in all, this ETN dropped 27% on the year as cotton got burned.
3. DJ-UBS Industrial Metals Total Return Sub-Index ETN (JJM) -27%
Unfortunately for many investors, we could have picked just about any single industrial metal fund and it would have been down big. While JJM wasn’t the third biggest loser overall (tin and nickel funds were worse) we felt it was appropriate to overview the broad metals fund in a year where most of these underlying commodities got slaughtered. This ETN consists of futures contracts on Copper (41.5%), Aluminum (30.1%), Zinc (15.1%), and Nickel (13.2%). The combination of these four commodities ultimately resulted in a poor performance on the year for JJM. With a shaky global economic outlook and the housing/construction industry still not back on its feet, it comes as no surprise to see this fund as one of the worst performers for 2011.
2. Dow Jones-UBS Cocoa Total Return Sub-Index ETN (NIB) -29%
It was not a good year for iPath’s commodity ETNs, as the Cocoa ETN comes in as the second worst performer. This result came as a surprise as it seemed that the soft commodity was set for a good year. The majority of the world’s cocoa is produced in The Ivory Coast, a frontier market that is chalk-full of risk. This year, The Ivory Coast was dealing with a violent civil war and an extremely unstable economy. Normally, this result would yield a jump in cocoa prices as production falls off and demands are not met. But it seems that the volatility was just too much for NIB to overcome, as this ETN was one of the worst commodity performers.
1. United States Natural Gas Fund LP (UNG) -42%
Everybody loves to hate UNG. It’s like the New York Yankees of the investing world. But nevertheless, UNG, with over $1.2 billion in assets and an ADV of over 11 million, remains one of the most popular ETPs in the world. A quick glance a UNG’s chart reveals that the fund really never had any momentum to begin with and has been steadily dropping for most of the year. Its volatile daily movements draws investors and traders alike, but natural gas seems to burn more investors than any other commodity. In fact, UNG hit its all time low this month, creating a strong buying opportunity for those who feel that its massive losses are only temporary. But be warned, this ETF can be a devil to predict and has caused headaches all across the investing world.
Disclosure: No positions at time of writing.