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1. 

   Louis
   Member

   Unless you own a giant warehouse, you cannot directly invest into oil, natural gas or other commodities. This is why ETFs like UNG (natural gas), DBA (wheat, corn, sugar and another IIRC), DBB (aluminium, zinc, copper and another) sounded interesting to me. Obviously, they are all consituted of futures of the pertinent commodity. However, because the subject future must be rolled over into the next one prior to the deadline for its delivery and given that, currently and since I've checked that the current future trading (that is, the future with the closest delivery date) is always worth less than the upcoming ones for the next months (this is known as "contago"), I don't see how the ETFs can increase in value for so long as there is a Contago situation since, prior to be forced to take delivery, the manager of the ETF must sell the current future to buy the next one at a greater price than what he just sold. Do they have a trick to resolve this problem or do I have to conclude that an ETF made of futures can only increase in value if there is no contago or if the value of the underlying commodity increase faster than the Contago effect??? If so, we should be warned about this.

   Posted 4 months ago #
2. 

   Donato
   Member

   Right now you are looking at contango. Backwardation, the opposite of contango, also occurs. Consider yourself forwarned.

   Posted 4 months ago #
3. 

   bjrad
   Member

   Anyone still holding UNG (or other futures-based ETF/N)? Brad

   Posted 3 months ago #

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