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The True Cost Of Commodity ETFs

Movement Capital profile picture
Movement Capital


  • The need to constantly roll futures is the biggest cost for most commodity ETFs.
  • Funds with concentrated positions can also incur material trading costs.
  • There are a variety of different commodity ETF structures, so be mindful when choosing funds in taxable accounts.

Investors recently piled into funds that try to provide direct exposure to the price of oil:

Most commodity ETFs own contracts for future delivery, not the physical commodity itself. Future contracts expire every month or so and funds then have to trade into new contracts. This introduces unique costs for commodity ETFs and this post explains how they work.

Cost #1: Rolling Futures

The cost of rolling into new contracts is the main reason ETF returns (USO in blue) differ from physical commodity prices (spot WTI in grey):

That chart is deceiving because it implies you’re better off buying physical oil compared to the ETF. In reality, you would have paid to store the oil and commodity futures accurately reflect those storage costs.

For example, you can put $100k of gold (GLD) in a safe deposit box for $20 per year. Storing $100k of oil (NYSEARCA:USO) is more expensive. That’s why the gold futures curve is flat and oil futures typically increase over time:

The need to constantly roll futures is the biggest cost for most commodity ETFs. For example, the spot price of WTI crude is $24.09 and futures expiring a year from now trade at $32.65. If you buy those futures today and spot prices are the same next year then you’ll lose 26% as the futures converge with lower spot prices.

The cost of rolling futures contracts, rather than the decline in commodity prices, has been the largest drag on commodity index performance over the past 10 years.

Source: Two Sigma

Roll costs change daily, but here’s a current snapshot for someone wanting to buy futures expiring next May:

Cocoa futures (NIB) are actually cheaper than spot prices. Assuming the cocoa curve stays the same, futures will rise to meet spot prices at

This article was written by

Movement Capital profile picture
Eversight Wealth is an independent flat fee investment advisor offering financial planning and investment management services. We help investors build low-cost diversified portfolios, create comprehensive financial plans, and save money with a flat annual fee. Formerly Movement Capital.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

For the "Commodity Returns" graph, spot WTI crude oil prices are from FRED: https://fred.stlouisfed.org/graph/?g=qUVV. Cumulative performance is shown since April 2006, the inception date of USO. For the table of roll yields, all prices are end-of-day prices for May 6, 2020 from Barchart. For the tax tables, data is for 2019 federal income tax rates. This only covers federal taxes and doesn’t include state taxes or other taxes like the net investment income tax. Movement Capital (MVMT Capital LLC) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Movement Capital is properly licensed or exempt from licensure. This article is solely for informational purposes and is not personalized tax or investment advice. All returns shown are simulated and are not an indicator of future results. Investments involve risk and are not guaranteed. No advice may be rendered by Movement Capital unless a client agreement is in place.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (8)

RobertPredicts profile picture
The guy who planned on "hitting it big" with oil etfs learned his hard lesson. Only thing I'll play with is SCO and UCO day to day. Never for a long term hold.
Tom Sandlow profile picture
Thanks, very informative.
Movement Capital profile picture
Thanks Tom, I appreciate it
Own the gold. Since 1969 when gold became unregulated, gold has outperformed the S&P by 30 %.
The Freak profile picture
thanks for writing and sharing
Movement Capital profile picture
No problem! Thank you
Good article.
Movement Capital profile picture
Thanks, much appreciated
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