Friday, June 12, 2009
This is the last in a four part series (interrupted, unfortunately, by about two weeks due to our recent move) that looks at commodity ETFs and ETNs. For the first three installments covering index-based, energy, and metals investment products, see these previous items:
May 27th - 2009 Commodity Fund Performance - Part II - Energy
May 28th - 2009 Commodity Fund Performance - Part III - Metals
Today, the subject is agricultural commodities, a sector that has underperformed other commodity groups so far this year with the added negative of severe contango in some areas. As shown below, the PowerShares DB Agriculture ETF (NYSEArca:DBA), the first agriculture-specific fund to hit the market in early-2007, continues to dominate the sector in both size and trading volume.
[Note: All year-to-date gains/losses are based on the May 22nd market close (consistent with the first three parts of this series) and the commodity offerings are listed in the order that they became available to the public.]
As of late-May, the $1.8 billion DBA fund (now at $2.5 billion according to the PowerShares website) sported a gain of just over five percent while the underlying commodities (i.e., equal weighting of corn, wheat, soybeans, and sugar) indicated an average gain of almost three times that amount.
This is one more indication of the toll that contango continues to take on commodity investment products, wheat now being the worst of this group whereas sugar was in severe contango a few months back.
Soybeans futures are actually in backwardation at the moment, meaning that it costs less to purchase the same size contract further out in time. But, this is not nearly enough to offset the penalty of contango in the other three, where, in order to maintain the position, money is lost each time an expiring futures contract must be sold and replaced with one having a later delivery date.
To see all futures prices for this group, see INO.com - corn, wheat, soybeans, sugar.
The second to market with an agriculture-only product in 2007 was the ELEMENTS Rogers International Commodity Index - Agriculture ETN (NYSEArca:RJA) which has much broader holdings - twenty commodities in all with corn, wheat, soybeans, and sugar accounting for about half the overall weighting. This ETN is doing just slightly better than the giant DBA ETF in 2009 but has has only about one-tenth its volume and size, another reminder that first-to-market usually gets most of the market.
And, speaking of first-to-market, the other two notable items in the table above both fall into that category as well.
The first livestock-only offering, the iPath Dow Jones AIG Livestock Total Return ETN (NYSEArca:COW) was down about ten percent in 2009 a few weeks ago when futures prices for the two commodities it tracks - about two-thirds live cattle and one-third lean hogs - indicated a gain of about one percent. A quick check of current prices has the ETN down more than 16 percent year-to-date while the underlying commodities are down only 4 percent.
Once again, this is due to persistent contango for these two commodities earlier in the year, a condition that only recently appears to be improving.
Finally, among the thinly traded sea of agricultural commodity ETNs at the bottom of the table that were launched back in early-2008 before the financial market meltdown began last fall, the only one whose survival appears to be guaranteed is the leveraged PowerShares DB Agriculture Double Long ETN (NYSEArca:DAG) which, with a healthy trading volume that now stands at almost a quarter million shares a day also has a year-to-date gain of +11.2, almost exactly double the DBA ETF that it tracks.
The companion PowerShares DB Agriculture Double Short ETN (NYSEArca:AGA) doesn't even have a tenth of the daily trading volume as the leveraged long product, a very good indication of the general mood of the investing public over the last few months where long-commodities has been a good bet, double-long commodities an even better one.
It will be interesting to see how all those other ETNs fare, whether commodity prices go up or down. It's hard to imagine that they can all survive unless the multi-month commodity boom continues to run for some time, attracting new investors and higher trading volume.