Commodity ETF Products At A Glance

Mar 03, 2011 in Commodities

ETF investors have been especially fond of energy stock ETFs. Here is a combined look at the growing popularity (and underlying appreciation) of energy equity ETFs from the 'Big 3' (SPDR, iShares and Vanguard).


But perhaps more important is the continued growth of commodity exchange-traded products. Many tactical participants consider commodites to have cleaner trending behavior than stocks and therefore somewhat easier to trade. We won't attempt to try to show this within a blog. We will point out though that there are also options markets made on commodity ETPs as another way to access these markets.

It's interesting to take a look at the amount of money being made off these growing asset bases by the providers. This has become significant. Even excluding Gold products (GLD, IAU, DBP etc...) and only using the top 13 as a sample, we see these products generating approximately $220 million in annualized fees at current (February month-end) levels. If you include GLD and others, this number more than doubles --- call it $450 million. While that sounds like a lot, consider that these products charge less than 1/2 of what mutual funds charge on a percentage basis. And mutual funds have $9 trillion in assets. (note that Vanguard has not entered the commodity ETN space or else things might be different).


By viewing assets, we see the combination of price strength and investor inflows/outflows -- which has caused this group to rise very quickly. I put these 13 together to show the growth in assets since the middle of 2009:


Finally, I used the free Backtest Portfolio Allocations App to create my own custom equal-weighted master index that shows the actual investor ETN return since the middle of 2010 (excludes USCI because its history is too short).


List of Commodity ETFs


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Comments (6) -

Mar 04, 2011 14:03 #

I have found a very profitable but simple strategy for trading commodity ETFs which has worked very well for the past five years:  Create a portfolio of DBA, DBB, DBE, DBO, DBP. Using monthly trades, trade the top single ETF each month if it is above its 6-month moving average. Using the back test tool we get: CAR = 39.9 percent, Sharpe = 1.54, max drawdown = -18.7

Jim United States

Mar 04, 2011 20:02 #

Following my previous example, if you expand your commodity portfolio a bit to (DBA, DBB, DBE, DBO, DBP, BAL, JO, NIB, SGG), and use the same strategy as before, your return would have been 55.6 percent per year with a Sharpe ratio of 1.47 and still a max draw down of -18.7 percent. If inflation pressures and commodity shortages become more prominent in coming months and years, this pure commodity strategy could be applied to a portion of one's capital to keep ahead of inflation.

Jim United States

Mar 05, 2011 17:23 #

Good idea! Thoughts on using JJS instead of (BAL, JO and SGG)?

Jay United States

Mar 05, 2011 22:09 #

Replacing BAL, JO, SSG with JJS gives CAR of 42.1, Sharpe 1.45 and -24.1 draw down. These are newer ETFs with little history, so I don't have a great deal of confidence in the results. However, another idea to boost returns even further is to switch to long term treasuries (TLT) instead of cash (SHY) when the leading commodity is below its six month moving average, because long term treasuries tend to move in the opposite direction of commodities. Using this change on our 9-ETF portfolio described above gives CAR of 65.2 percent, with -18.7 draw down.

Jim United States

Mar 13, 2011 14:03 #

What settings are you all using for the commodity approach?  3month:40, 20 day:30, 20 vol:30?  Is this the stock setting?

widespread panic United States

Mar 17, 2011 14:55 #

Reply to widespread panic:

I was using the default momentum settings on Portfolio Relative Strength:

+ Update schedule = monthly
+ Buy top 1
+ MA Filter set to 6 months
+ Return A set to 3 months
+ Return B set to 20 days
+ Volatility set to 20 days

Jim United States

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