The spike in investor interest in funds like United States Natural Gas (NYSEArca: UNG), PowerShares DB Commodity Index Fund (NYSEArca: DBC), PowerShares DB Agriculture Fund (NYSEArca: DBA) has resulted in creation halts and strategy reconstruction as the Commodity Futures Trading Commision (CFTC) scrutinizes the industry, writes Don Dion for TheStreet. (More on the CFTC’s commodity limits).

The iPath Dow Jones AIG Platinum TR Sub Index (NYSEArca: PGM) recently had to halt creation in order to remain within position limits. (Regulation hits platinum ETN). And most recently, PowerShares DB U.S. Dollar Bullish (NYSEArca: UUP) had to rush to get  approval to create new shares as trading volume suddenly picked up. (Bullish dollar ETF granted new shares).

Traditional ETFs track underlying indexes, which is made possible through the share creation and redemption process. When the creation process is halted, it creates premiums to an ETF’s underlying value. The result is an environment good for shareholders but bad for investors chasing the trend.

As an investor, you should be aware of when an ETF’s share creation has been suspended and understand that if a futures-based ETF runs out of shares, this could happen. If you’re already holding such an ETF, monitor your funds to be sure that all is running smoothly. The risk of holding a fund with suspended share creation is that when normal trading resumes, losses could be incurred as the premium disappears.

For more information on ETF trading, visit our ETF 101 category.

Max Chen contributed to this article.

Van Eck

Van Eck now manages about $9.7 billion in assets. Their varied lineup includes about 20 funds that range from gambling companies to alternative energy to the Persian Gulf, reports Ian Salisbury for The Wall Street Journal.

Their strategy involves “nibbling at the edges”  which enables them to offer products that dabble in niche markets that generally aren’t available elsewhere. While both Van Eck and the fund industry giants with which it competes offer narrowly focused funds, the giants tend to offer slates of ETFs that, taken together, cover the entire market. (ETF portfolio basics).

Van Eck’s offerings don’t cover the spectrum, though. They have funds that cover steel, Russia and the gold mining industry, but you won’t find funds aimed at Japan or Western Europe. What most of their ETFs do have, as the company says, is some kind of relationship to “hard assets.” (The benefits of hard assets).

For more stories about ETFs, visit our ETF 101 category.

• Market Vectors Russia (NYSEArca: RSX): up 116.6% year-to-date

• Market Vectors Gold Miners (NYSEArca: GDX): up 36.3% year-to-date

• Market Vectors Agribusiness (NYSEArca: MOO): up 38.9% year-to-date

As the Commodity Futures Trading Commission (CFTC) mulls over position limits for futures-based commodity ETFs, many providers are launching commodity equity funds to help sidestep the issue altogether. (The four types of commodity ETFs).

Cinthia Murphy for Index Universe lays out the facts:

• It’s not a one-to-one relationship. The long-term correlation between equities and futures is good, but not perfect.
• Investing in commodities-linked equities can be more volatile than tracking spot prices of commodities, warns Ed Lopez, product manager for Van Eck. “Any small movement in spot prices can actually affect producers greatly,” he says.
• Futures-based commodity index products may, over time, demonstrate significant tracking error against spot indexes because of the influence of contango, which is when the futures prices is above the expected future spot price.
• Equities are performing better than futures this year. Many investors may be a little skittish of futures while the CFTC officially decides what the limits will be. (How to avoid bubbles).

For more stories about commodities, visit our commodity category.

Some equities-based commodity ETFs:

• ALPS ETF Trusts Jefferies TR/J CRB Global Equity Index Fund (NYSEArca: CRBA)
• Market Vectors Agribusiness (NYSEArca: MOO)
• Market Vectors RVE Hard Assets Producers (NYSEArca: HAP)
  
• SPDR S&P Metals & Mining (NYSEArca: XME)

Jefferies

The latest funds from Jefferies are based upon the Thompson Reuters/Jefferies CRB-EQ series of indexes. The equity-based funds track the industrial metals and agriculture indexes, explains Ron Rowland for Seeking Alpha.

The ETFs are:

• Jefferies/TR/J  CRB Global Agriculture Index (NYSEArca: CRBA)
• Jefferies/TR/J  CRB Global Industrial Metals Equity Index Fund (NYSEArca: CRBI)
  

CRBA holds equity securities from global universe of listed companies engaged in the production and distribution of agricultural products, including grains, livestock, fertilizers, chemicals, seeds, traits (seed characteristics attained through genetic modification) and equipment. (Another Jefferies Commmodity ETF launched earlier this month).

CRBI offers investors access to shares of companies across the globe engaged in the production and distribution of base/industrial metals and base/industrial metal products, including copper, aluminum, iron ore, steel, nickel and others. (Where copper and steel prices are going).

Both funds come with a 0.65% expense ratio.

These funds will not be affected by regulations expected from the Commodity Futures Trading Commission (CFTC), because they hold equities and not futures. (How regulations could change commodity ETFs).

For more stories about new ETFs, visit our new ETF category.

This week, sugar prices rose to highs not seen in 28 years as concerns over a global sugar shortage were realized. The October contract for sugar, which expired Wednesday, rose 0.66 cent to 24.12 cents per pound on the Coffee, Sugar & Cocoa Exchange, reports Sarah Lepro for Associated Press. (Why are people so sweet on sugar?)

Last year, poor weather and low crop production hindered the sugar harvest and now the commodity is coming up short. A dryer-than-normal growing season in India and too much rain in Brazil have hurt the crops in two of the biggest sugar-producing countries. (More on the coffee, cocoa and sugar outlook).

Jim Rogers, a commodities enthusiast, claimed last year that agriculture was a good place to be. Last year, he said he was going long on sugar. Since then, prices have doubled or tripled. Despite that, prices are still 70% off their all-time high, reports The Market Oracle. “I wouldn’t buy sugar right now, [but] I’m not selling it,” Rogers says.

For more stories about sugar, visit our sugar category. Be sure to be aware of the differences between ETFs and ETNs.

• iPath Dow Jones AIG Sugar TR Sub-Index ETN (NYSEArca: SGG): up 60% year-to-date

In the short-term, the fourth quarter could be volatile for gold prices, and some analysts believe gold will be vulnerable to pullbacks if the dollar appreciates or liquidation occurs, writes Melinda Peer for Forbes. But physically-backed ETFs, such as the SPDR Gold Shares (NYSEArca: GLD), are currently picking up on weaker dollar expectations.

ETF Securities is expanding its physically-backed investment products and recently launched ETFS SIVER TRUST (NYSEArca: SIVR) and ETFS GOLD TRUST (NYSEArca: SGOL). Both funds are 100% backed by the physical assets held in London and Switzerland, respectively.

Meanwhile, potential regulations coming forth from the Commodity Futures Trading Commission (CFTC) has some funds doing a little shuffling.

PowerShares is restructuring its funds in an attempt to take advantage of loopholes to meet the “safety position limits,” remarks Don Dion for TheStreet. The ETFs PowerShares DB Agriculture (NYSEArca: DBA) and PowerShares DB Commodity Index Tracking (NYSEArca: DBC) will reduce positions in corn and wheat futures by the end of October.

DBA and DBC invest in commodities futures to achieve their intended tracking strategies. In addition to reducing their current positions, DB will take positions in coffee, cocoa, live cattle, copper, natural gas and gasoline. This will allow the fund to continue to operate within limits.

DBC will start investing in oil futures contract traded in Europe – a loophole that allows the fund to reduce U.S. oil holdings while adding foreign holdings.

Managers of United States Natural Gas (NYSEArca: UNG) have already cut back on natural gas futures contracts listed in the United States in favor of swaps elsewhere.

The CFTC has noted its intent on increasing position limits placed on future-based commodity ETFs. ETF managers have already stoped creation of new shares, shut down funds and restructured underlying investment strategies.

For more information on commodities, visit our commodity category.

Max Chen contributed to this article.

United States Natural Gas (NYSEArca: UNG) rolled its October contracts and bought November contracts on Sept. 14. The roll will wrap up today, reports Asjylyn Loder for Bloomberg. John Hyland, chief investment officer for the fund, said that the speculators had “only a random chance of being right.”

Meanwhile, it was widely expected that the Commodity Futures Trading Commission (CFTC) would move in on the energy sector first, but the CFTC revoked position limit exemptions in wheat and corn for two Deutsche Bank AG PowerShares commodity funds: PowerShares DB Commodity Index Tracking (NYSEArca: DBC) and PowerShares DB Agriculture (NYSEArca: DBA), effective at the end of October, writes Nevil C. Speer for Cattle Network.

As these new regulations are discussed, many wonder what the implications could ultimately be.

Commodity related ETFs are usually “long-only” positions that focus on the buy side in the market. It is the long position that has many believing these types ETFs are helping to artificially drive up market prices. Others argue that market prices have little to do with ETFs but with fundamentals – supply and demand are seen as the real drivers of commodity prices.

If the CFTC begins regulating the industry, some believe that restrictions added could divert funds to less regulated exchanges and cause hedging business overseas to move to other markets with different regulations. In the meantime, other funds may limit issuance of new shares in the coming months, which would reduce liquidity in the markets.

The regulations imposed by the CFTC could eventually distort prices in the markets and risk management could become more difficult to handle.

Could we be in a trough until the next bull market cycle? That’s what Jim Lowell for the MoneyShow feels. And if the improving macro trends hold up, the markets are primed for a longer-term up swing.

The latest five-month rally is setting the stage for a track back to growth, especially in China, and possibly in the United States. This puts commodities and the stocks in the companies that mine, transport, process, and sell them, in a growth position, with more room to run, Lowell says.

The bottom line is that commodities from steel to corn are already low in supply, and if a return to growth continues, the demand will outstrip the supply, possibly creating a price premium.

The projected growth of emerging market consumers, and the re-emergent growth of United States and possibly European consumers, all the world is a commodity stage. There are several ways to play the potential growth of commodities with ETFs, with both broad and narrowly focused ETFs.

However, watch the trends for opportunities – don’t rely on predictions, because unforeseen events have a way of delivering surprises when it comes to commodity prices. Read our commodities special report on the ins and outs of investing in them, then read our trend following report for how to implement a simple plan. Or for more detail, check out The ETF Trend Following Playbook!

A sample of various commodity ETFs:

• United States Oil (NYSEArca:USO): up 11.6% year-to-date

• iShares S&P GSCI Commodity Index Trust (NYSEArca:GSG): up 2.6% year-to-date

• PowerShares DB Precious Metals (NYSEArca:DBP): up 17% year-to-date

For more stories about commodity ETFs, visit our commodity ETFs category.

Although there are various ways to diversify, Roger Nusbaum, a contributor at TheStreet, follows a Mohammed El-Erian type portfolio with allocations in equity, bonds and real assets. El-Erian is the CEO and co-CIO of PIMCO.

Nusbaum took a look at ETF choices that fit in with El-Erian’s concept:

In the equity portion, he suggests allocating 10% to the PowerShares S&P 500 Buy Write Portfolio (PBP) and 5% to the iShares S&P 600 Small Cap ETF (IJR) which enables investors to benefit from fact that small-cap stocks generally lead the way in the early stages of a stock market cycle.

Additionally, he suggests allocating 10% of a portfolio to the WisdomTree International Large Cap Dividend ETF (DOL) and 5% to the SPDR S&P International Small Cap Index Fund (GWX). In regard to gaining access to emerging markets, Nusbaum suggests looking at the PowerShares BLDRS Emerging Market 50 Index Fund (ADRE).

Next, he suggests adding fixed-income ETFs to a portfolio. In this portion, he states one should look at the iShares Barclays Agency Fund (AGZ) or iShares S&P/Citigroup 1-3 Year International Treas (SHY). PIMCO also offers a PIMCO 1-3 Year U.S. Treasury Index Fund (TUZ).

To wrap up fixed income, he suggests the use of iShares S&P Citigroup International Treasury (IGOV).

In regard to real assets, Nusbaum suggests utilizing the WisdomTree International Real Estate ETF (DRW) the SPDR Gold Trust (GLD) and the PowerShares DB Agriculture Fund (DBA). Additionally, he suggests gaining exposure to infrastructure through the iShares S&P Global Infrastructure Fund (IGF).

Lastly, he states that one should allocate 8% to special opportunities like the PowerShares Water Portfolio (PHO).

In addition to this, we suggest that one utilize a strategy when investing, such as monitoring market trends using the 200-day moving average.  More on the trend following strategy can be found in our new book.

For more stories on portfolio construction and the use of ETFs, visit our ETF education category.

Kevin Grewal contributed to this article.

ETFs and exchange traded notes (ETNs) have long been considered low cost, liquid tools for trading to gain exposure to the commodities market. But now many worry that the  Commodity Futures Trading Commission (CFTC) has assumed that the large amounts of capital from retail investors pouring into such ETFs has led to a distorted marketplace, explains David Bogoslaw for BusinessWeek.

Thus far, most of the attention has been focused on certain energy and agricultural products that hold futures contracts. Several funds have stopped issuing new shares in anticipation of CFTC limits. That has been enough to cause the funds to drift from their net asset values (NAVs), putting a dent in their appeal.

Position limits are one of the major regulations involved, and they help support the integrity of the market, according to a CFTC spokesman. Many ETF investors who are in ETF products in the commodity realm say they are less inclined to use them if the limits are enforced. How this plays out remains to be seen.

Meanwhile, natural gas prices have plunged to a seven-year low, reports Liz Kay for the Baltimore Sun. The prices are being sent lower by vast supplies and a weak economy, but many believe that the prices will head up again as the economy recovers.

As of Wednesday, Barclays Global Investors announced they are not planning on scaling back their ETFs focused on precious metals, although U.S. regulators are planning on imposing limits. Frank Tang for Reuters reports that the precious metals trusts would not be affected by limits on futures trading because they own physical gold and silver bullion held by a custodian on behalf of the trusts.

• United States Natural Gas (UNG): down 52% year-to-date

• PowerShares DB Agriculture (DBA): down 0.8% year-to-date

• iShares S&P GSCI Commodity Indexed Trust (GSG): up 8% year-to-date

For more stories about commodities, visit our commodity category.