The Performance of Commodities Exchange Traded Funds Can Vary Significantly


In his Wall Street Journal article “All ‘Commodities’ Aren’t Equal,” Liam Pleven makes the simple point that the performance of broad-based commodities index exchange traded funds may vary significantly because of varying portfolio composition. The fungibility of commodities, or inaccurate advertising, may have led some investors to believe that commodity funds are fungible. They aren’t. The recent sell-off in commodities, particularly oil, drove that point home and “reinforced a painful lesson for some investors,” according to the article.

The main example given is the variance between the iShares S&P GSCI Commodity-Indexed Trust (“S&P GSCI”) and the Dow Jones-UBS Commodity Index (“DJ-UBS Index”) ? both supposedly broad-based funds. From May 2 through 6, 2011, the S&P GSCI fell 11.2% while the DJ-UBS Index only fell 9.1%.

The reason for that variance is that the composition of the S&P GSCI is two-thirds energy, while the DJ-UBS Index is one-third energy.

The rest of the article sets forth additional examples of how various commodity index exchange traded funds vary in their portfolio compositions. Some are very narrowly focused on a particular sector of the energy market.

Investors should be aware that while some exchange traded funds may be described as broad-based and diversified index funds, they may actually be concentrated in one or more sectors, and, therefore, riskier than advertised.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 45 occasions. Page Perry’s attorneys have extensive experience in representing investors in cases involving exchange traded funds. For further information, please contact us.