A commodity that has been mired in underperformance throughout the month of May before springing to life in the past two trading sessions is Cotton.
Although the commodity is likely not a household name among ETF portfolio managers, it trades quite actively from a futures standpoint with commodity traders and two ETNs exist that are designed to track Cotton futures.
The iPath DJ-UBS Cotton Total Return ETN (NYSEArca: BAL) launched back in 2008 and tracks the Dow Jones-UBS Cotton Subindex Total Return, which invests in one futures contract that is pegged to cotton prices.
More recently, Barclays also launched iPath Pure Beta Cotton ETN (NYSEArca: CTNN) a little over a year ago in April of 2011, and the ETN was designed to incorporate more than one futures contract and a non pre-determined “roll schedule,” so as to mitigate the effects of contango and/or backwardation that can negatively impact the returns of commodity future based products over time depending on the shape of the futures curve.
BAL remains the more popular product to date, averaging about 43,000 shares traded on a daily basis, while CTNN trades on average only about 400 shares.
Year to date, BAL is down 21.07% while CTNN has lost 20.73%, and in the trailing one year period, CTNN is down 43.60% and BAL has registered a return of – 41.14%.
The month of May was especially damaging to cotton prices, as BAL for instance fell sharply from a $56 handle to as low as $41.24 which was touched just earlier this week before the commodity suddenly reversed course, with BAL closing yesterday at $46.19.
However, the ETN still remains well below both its 50 and 200 day moving averages ($51.76 and $57.50 respectively), so some work needs to be done before most momentum players would get behind this commodity to any large extent.
iPath DJ-UBS Cotton Total Return ETN