It should be noted that the fund’s poor performance of late is mostly because of the nature of the underlying market, writes Paul Justice for MoneyShow. [Sugar ETN Soon to Get Sweet?]
For starters, LSC’s exposure wasn’t able to shift in time to capture the quick and sharp increase in commodity prices. LSC’s returns should return to normal when commodity-price volatility is high but following a more uniform trend line, and volatility won’t stay high forever, adds Justice. [Strategies for a Natural Gas Rebound.]
Since the fund’s June 2008 launch, LSC has only lost 15% while others dropped a great deal more. LSC provided the diversification benefits strategic commodity investors sought and did so with less volatility than the long-only alternatives. Long-short commodity funds tend to have lower volatility and higher risk-adjusted returns as compared to long-only funds in the long-term. [Commodity ETFs for the Jim Rogers Bull.]
Additionally, it should be noted that commodities are a good way for investors diversify a portfolio by investing in a non-correlated asset class. LSC is below its long-term trend line right now, but perhaps there will be opportunity in the future. [How to Follow Trends.]
For more information on commodities, visit our commodity category.
Max Chen contributed to this article.