The risk-free rate is already low, so collateral on futures won’t provide much cash return. Spot-prices are elevated because the markets anticipate high future commodity demand. Over the last five years, futures have been in a state of contango. Correlation between commodities is dampening diversification returns.
Lee, though, singles out two ETFs provide exposure to futures in backwardated markets with high roll yields:
- PowerShares DB Commodity Index Fund (NYSEArca: DBC) rebalances annually to include futures contracts that provide the highest implied roll yield.
- USCommodity Commodity Index Fund (NYSEArca: USCI) rebalances monthly to pick out the seven most backwardated contracts and seven highest returning contracts.
PowerShares DB Commodity Index Fund
For more information on commodities, visit our commodity ETFs category.
Max Chen contributed to this article.
Article corrected to reflect DBC rebalances annually, rather than monthly.