Soft Commodities: The Inequality of Equal-Weighting

By Brad Zigler

World [#11] sugar futures started Friday trying to digest news of ever-building inventories of sweetener piling up in offshore ports ...

Prices seesawed in typical fashion on the NYBOT/ICE electronic market through most of the day, with a mildly bullish tone. Reaction to the Imperial Sugar refinery blast was muted to say the least.

That is, until the last hour of trading. Then the bulls came roaring out of their pens dragging prices upward a half-cent per pound. The March contract closed at 12.71 cents, near its intraday high.

Who among broad-based commodity ETF investors were beneficiaries of sugar’s 6.1% one-day gain?

The prize goes to – tah-DAH! – the newbies: holders of the GreenHaven Continuous Commodity Index Fund (Amex: GCC).

GreenHaven’s ETF, launched late last month, is based upon the original Commodity Research Bureau benchmark of 17 equally weighted futures. Sugar, and its cousins in the soft commodities category – coffee, cocoa, orange juice and cotton – take up nearly a third of GCC’s real estate. Softs, in fact, make up the single largest segment within the GCC portfolio.

No wonder GCC’s nearly 11% appreciation since its January 24 launch is double the contemporaneous gain realized by other broad-based ETFs such as the iShares S&P/GSCI Fund (NYSEArca: GSG) or the PowerShares DB Commodity Index Fund (Amex: DBC).

GCC’s 84% correlation to softs makes the fund exquisitely sensitive to this agricultural segment which, with recent bullish patterns in cocoa and coffee, is shaping up as the next best place for bulls.

Of course, at a 1.95% annual expense ratio, you should deliver more than your competitors. Time will tell if GCC can continue to deliver the goods.

Nothing Soft About GCC Gains

Comments

[granger:]

I have been using the RJI, seems very diversified.

2008 Feb 13 11:43 AM

[sbenard:]

Ag commodity ETFs are exploding in price, but also in number! I hope they continue to grow in size, because I would like to be more diversified in the sector. If there are only a handful, that is more difficult.

2008 Feb 18 06:08 PM