News

January 18, 2010

Contangos Bedevil Commodity Futures Funds

By Sally White

Futures-based funds may not be the best way of making money in commodities, even though they are among the fastest growing fund sector, warned international investment research group Morningstar last week. In 2009 exchange traded funds in commodity futures lagged spot markets and commodity equity funds on its measures.

Exchange traded funds that use futures to track their underlying commodity must sell their contracts before expiry and replace them. Last year many commodity funds were hurt by the so-called “negative roll-yield”, said Paul Justice of Morningstar, speaking at the Inside Exchange Traded Funds conference in Florida. Longer-dated contracts were often more expensive than those the funds had to sell, (contangos), and they were caught out. “There are periods of time where futures-based commodity...