Email of the day
"Recently I have been reading up on ETFs to see how I can buy those for commodities, stock indices, etc. Other than ETFs that actually physically contain the underlying, many merely contain the futures of the underlying especially for many commodities. For price-tracking products that do not physically contain the underlyings, which are relatively the best (in terms of giving returns closest to the underlying over say a period of 5 years)? Returns of price-tracking products containing futures have been noted to be rather disappointing compared to returns of the spot prices. How about e.g. Royal Bank of Scotland's "zero certs"? I have no idea currently what price-tracking product to invest in after discovering that ETFs containing futures are not that great in tracking the spot market. And dealing directly in futures can be expensive."
Eoin Treacy's view Thank you for this informative email which is sure to be of interest to the Collective. Through your own due diligence you have come to the same conclusion we have long voiced. Attempting to track the price of raw commodities is a far from simple process. Funds which take physical possession of commodities are most likely to track prices reasonably accurately and protect investors from contango costs.
Unfortunately for long-term investors, funds which hold physical commodities only tend to exist for the precious metals and tin as far as I know. There is talk of a physical copper fund but this has not yet been launched yet. At some point, passive commodity funds, particularly for economically sensitive goods, may come under more focused scrutiny because they could be accused of cornering the market if they become too large.