Exchange traded funds (ETFs) that track commodities were under the regulators’ microscope a few months back, but despite all that, some experts feel that they still have a future in the markets and with investors.
The Commodity Futures Trading Commission (CFTC) took a look at commodity ETFs in the wake of the run-up in oil and natural gas prices. Regulators were concerned that these funds helped contribute to the bubble, reports David Hoffman for Investment News. ETF providers vigorously defended their funds. (CFTC and commodity ETF provider face off).
The CFTC has yet to put limits on the number of futures contracts funds can hold, but if it did, it could make it challenging for these funds to do business, said John Hyland, chief investment officer at United States Commodity Funds. U.S. Commodity Funds is the name behind two of the most popular ETFs on the market this year: United States Oil (NYSEArca: USO) and United States Natural Gas (NYSEArca: UNG). (What is going on with regulators and the industry.)
Providers of such ETF are making every effort to make sure they “optimize” the underlying basket of stocks and avoid issues of contango, where the price of a commodity for future delivery exceeds the spot price. Optimizing the underlying basket could make the funds “more active,” Hyland noted. (How contango affects ETFs).
Commodity funds may become more expensive as a result of any regulations that are handed down, but they’ll no doubt continue to remain popular with investors. They offer simple and efficient access to what can be a complicated and volatile market, something any investor can appreciate. In fact, assets in commodity funds in November increased 13% from October, so clearly investors aren’t shying away. (Potential regulations prompt fee hikes).
For more stories about commodities, visit our commodity ETF category.
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.