ETF Trends
ETF Trends

Last spring’s surge in commodity prices lead to the introduction of a slew of commodity based exchange traded funds (ETFs) and exchange traded notes (ETNs).  Now that the price surge has proven to be short-lived, what lies ahead for these ETFs?

There are more than two dozen commodity ETFs to choose from, most of them being introduced to the market in the past couple of years.  The interest and appeal of these ETFs can be accounted for because of both the appealing characteristics of ETFs and the overall spike in commodity prices, states the Associated Press

Crude oil doubled its value in twelve months, only to see itself down 70% from its historic high, gold flirted with the $1,000 mark, now trading around $800, and corn reached $8/barrel, now at $3.30/barrel.  These all-time highs made the industry lucrative, but now that they have bottomed out and the industry may not be so attractive.

This dramatic decline in prices hinders ETFs, in that the ETFs may fail to gain enough assets to generate the sustained momentum needed to stay alive.  It appears that the future prospects of these ETFs will be determined by whether the commodities market rebounds.    

Some, like Jim Rogers, believe that a bounceback may be in sight and the industry may be prosperous once again.  Invesco PowerShares Capital Management launched four new commodity ETFs in September, and ProShares introduced eight new commodity-based ETFs recently.

Commodities are known for their volatility, ability to offer a hedge against inflation, and their trend to move against the overall market enabling wise investors to stabilize their returns over time.  The industry has been slaughtered and a rebound is a future possibility, as the demand will always be there for these goods.

  • iShares S&P GSCI Commodity-Indexed Trust (GSG): is down 46.1% year-to-date

  • ELEMENTS Rogers International Commodity Agriculture ETN (RJA): is down 40.1% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.