Tuesday, May 26, 2009
This is part one of a four part series this week that will look at the current crop of commodity ETFs, ETNs, and mutual funds, most of which sprung to life in the first half of 2008, prior to the financial market meltdown last fall.
First up are the index-based offerings where it's hard to tell which fund follows which index based on what appears in the gain/loss column in the table below since there is such a big disparity in how well funds follow the commodity index they're supposed to track.
[Note: All year-to-date gains/losses are based on the May 22nd market close (last Friday) and the commodity offerings are listed in the order that they became available.]
Launched more than five years ago, the Pimco Commodity Real Return Fund (PCRCX) is, by far, the oldest of the lot also having the distinction of outperforming its index by the widest margin.
While the Dow Jones AIG Commodity Index is up almost three percent this year, the Pimco fund is up a whopping 11.7 percent and the only other DJ-AIG based fund in this list - the iPath Dow Jones-AIG Commodity Index Total Return ETN (NYSEArca: DJP) - has a gain of 4.0 percent.
Bill Gross' good bond bets have been a boon for the Pimco fund (recall that, like most ETFs, this fund invests mostly in bonds, typically using less than 10 percent of investors' money to establish futures and/or swaps positions in the commodities themselves) and just a mild contango across the broad spectrum of commodities has been kind to DJ-AIG index followers, however, the same can't be said for other indexes.
The energy heavy S&P GSCI Commodity Index has suffered greatly from a wicked contango in energy commodities earlier in the year, a condition that has improved greatly in recent months. While energy prices have soared - heating oil up 7 percent, crude oil up about 35 percent, and gasoline having surged 73 percent - the GSCI is now up just 0.4 percent and the biggest fund that tracks it - the iShares GSCI Commodity-Indexed Trust ETF (NYSEArca:GSG) - is still in negative territory for the year at -0.6 percent.
The iPath S&P GSCI Total Return Index ETN (NYSEArca:GSP) has done a little better at +1.7 percent and the GS Connect S&P GSCI Enhanced ETN (NYSEArca: GSC) is the star performer at +7.5 percent, still just a fraction of the gains for the underlying commodities when removing the effects of contango.
As you'll see tomorrow, it's even worse in some energy-only funds.
A few relative newcomers also have high single digit gains for the year with the one doing even better, their much broader commodity holdings more than offsetting the negative impact from energy commodities.
• ELEMENTS Rogers Intl Commodity ETN (NYSEArca: RJI) - up 9.2%
• GreenHaven Continuous Commodity Index ETF (NYSEArca: GCC) - up 7.7%
• E-TRACS UBS Bloomberg CMCI Index ETN (NYSEArca: UCI) - up 16.1%
The main reason why the E-TRACS ETN is doing so well is that this index takes an approach similar to the one that Deutsche Bank adopted a few years back, providing flexibility in replacing expiring futures contracts so as to avoid the sort of contango-driven losses that other indexes have been harmed by recently.
The PowerShares DB Commodity Index Tracking Fund ETF (NYSEArca:DBC), something of an old-timer now in its fourth year, has fared much better than other energy-heavy commodity indexes. Even though it holds 35 percent crude oil and 20 percent heating oil along with lesser amounts of gold, aluminum, corn and wheat, it has still produced a modest gain this year of 4.9 percent.
The other PowerShares/Deutshe Bank funds are barely a year old and the double long ETF seems to have attracted a pretty good following so far with average trading volume of 185,000 shares, but you could have done just as well with either the ETRACs or Pimco funds.
Next up: Energy ETFs and ETNs