By halting the issuance of new shares, these ETFs became similar to closed-end funds (CEFs), which issue a fixed number of shares, then trade on exchanges. The result has been that because some ETFs stopped issuing new shares even as demand for commodity investments remained strong, they began trading at a premium to their net asset value (NAV).
Thomas M. Anderson for Kiplinger reports that most ETFs and exchange traded notes (ETNs) use derivatives, usually futures contracts, to simulate the returns of a commodity or commodity index. Most of the ETFs do not hold the actual physical commodity.
The popularity of these funds has made them a target for regulators, who suspect them of being at least part of the cause of rapid price swings and irregularity. The CFTC has not officially decided upon position limits yet for exchange traded products. A decision is expected by the end of this month.
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