Futures also add a time component to the price: when tomorrow’s cost is higher than today’s, it’s called contango; the inverse called backwardation. Investors should note that some ETFs have blind front-month roll strategies, but most ETFs now buy futures months in advance. None of these ETFs claim to deliver the spot price of the underlying commodity.
Futures-based ETFs are usually reported on K-1 tax forms. The profits are taxed at 60% long-term and 40% short-term capital gains rate. Read more about how ETFs are taxed here, and always consult your tax professional for advice.
- iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): up 8.1% for the year
Swaps-based. Swaps recently entered the ETF conversation when the popular United States Natural Gas (NYSEArca: UNG) turned to them in order to gain exposure. Generally, ETFs that invest in swaps receive the benchmark performance through the swap. The use of swaps give investors exposure to areas of the market that can be difficult to target. Read more about the benefits of swaps here. When the Commodity Futures Trading Commission (CFTC) announces regulatory changes, swaps could become a part of even more futures-based ETFs.
For more information on commodities, visit our commodity category.
Max Chen contributed to this article.