2009 Commodity Fund Performance - Part II

This is part two of a four part series this week that looks at commodity ETFs and ETNs. For the first installment that covered index-based offerings, see this item from yesterday.

Today, attention turns to energy commodities where the effects of contango earlier in the year are on vivid display as the year-to-date gains on unleveraged crude oil investments now range from an astonishing -4.7 percent to +19.1 percent.
[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.]

There are now a total of ten "oil-only" offerings, three ETFs and seven ETNs, the oldest and largest - United States Oil Fund, LP ETF (NYSEArca:USO) - being one of the worst performers for those holding it any length of time. Its modest 1.8 percent gain in 2009 is at odds with the 38 percent increase in the price of crude oil so far this year, a fact that doesn't seem to bother too many individuals as it has almost $3 billion in assets.

Presumably, holders of USO are all traders as you'd have to be a fool to take this kind of punishment over the long-haul when there are so many other better alternatives. Topping the list of alternatives is the PowerShares DB Oil Fund ETF (NYSEArca:DBO) which makes use of a futures contract replacement strategy that reduces the negative effects of contango, its 19.1 percent year-to-date gain being just over half that of crude oil, but an impressive accomplishment nonetheless given the extreme conditions that existed a few months ago.

To address the poor performance of their flagship fund, the folks who run USO launched another "oil-only" ETF back in late 2007 that spreads the purchases of futures contract out over an entire year - United States 12 Month Oil Fund, LP ETF (NYSEArca:USL). With a gain of 13.3 percent this year, it has accomplished its intended goal but it trails the poorly performing original by miles in both net assets and trading volume.

PowerShares and MacroShares both have inverse oil ETNs and PowerShares adds 2x leverage for each of these options, the average daily trading volume of more than 29 million shares for the PowerShares DB Crude Oil Double Long ETN (NYSEArca:DXO) being proof of its irresistible appeal to traders (it's not bad for long-term investors either with a gain of 45.9 percent in 2009). Its trading volume is now greater than every other commodity product offering including the original, giant USO fund and the gargantuan gold ETF, the $34 billion SPDR Gold Shares ETF (NYSEArca:GLD).

The remaining "oil-only" funds are as follows, the booby prize going to the GSCI-based product atop the list, a long fund that is down almost five percent this year.

• iPath S&P GSCI Crude Oil Total Return ETN (NYSEArca:OIL): -4.7%
• PowerShares DB Crude Oil Double Short ETN (NYSEArca:DTO): -22.8%
• PowerShares DB Crude Oil Long ETN (NYSEArca:OLO): +17.2%
• PowerShares DB Crude Oil Short ETN (NYSEArca:SZO): -10.6%
• MacroShares $100 Oil Up ETF (NYSEArca:UOY): +4.8%
• MacroShares $100 Oil Down ETF (NYSEArca:DOY): -5.8%

The four single commodity offerings that are not crude oil are doing a much better job of tracking their commodity prices than most oil funds, but that's not necessarily a good thing if you happened to think that natural gas was due for a rebound this in 2009.

• United States Natural Gas Fund, LP ETF (NYSEArca:UNG): -40.9%
• iPath DJ-AIG Natural Gas Total Return ETN (NYSEArca:GAZ): -43.0%
• United States Gasoline Fund, LP ETF (NYSEArca:UGA): +57.6%
• United States Heating Oil Fund, LP ETF (NYSEArca:UHN): +5.9%

While the two natural gas ETFs are within a few percentage points of the 38 percent decline for natural gas, the heating oil fund is just about "dead-on" the 6.7 percent gain for its underlying commodity.

The star performer of the group, however, is the only U.S.-listed ETF that holds unleaded gasoline futures, where the performance comes up a bit short of the huge 73.3 percent gain for unleaded gasoline, but is impressive nonetheless.

Rounding out the list of ETF/ETN offerings are this group of four products that hold the same energy commodities - crude oil, brent crude, heating oil, gasoline, and natural gas - but have very different results so far this year.

• PowerShares DB Energy Fund ETF (NYSEArca:DBE): +9.9%
• ELEMENTS Rogers Intl Commodity Energy ETN (NYSEArca:RJN): +7.2%
• iPath DJ-AIG Energy Total Return ETN (NYSEArca:JJE): -10.9%
• E-TRACS UBS Bloomberg CMCI Energy Index ETN (NYSEArca:UBN): +11.2%

The PowerShares and E-TRACS products have benefited from their futures contract replacement strategy and, while still trailing the underlying commodity price moves by a wide margin, have managed to post gains for the year.

Similarly, the Rogers International fund has a high single-digit gain, but what to make of the iPath ETN with a huge loss? At least the folks at iPath are consistent as their OIL ETN is a similar laggard in the first group of "oil-only" funds.

More than ever before, it is clear that one really has to be careful before taking long-term positions in commodity ETFs and/or ETNs.

Next up: Metals

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Full Disclosure: Long DBE only