How Efficient was your 2013 Commodity Exposure?

Every month, we see if buying and holding a couple of commodity markets over the course of a year are doing better than investing in the ETF’s that supposedly track them. Typically, the ETF’s underperform a simple strategy of buying the December futures contract and rolling it annually. Well, the numbers are in for the final tally in 2013, and it looks like futures edged out ETF’s on average by a little more than 1%, although there was a wide dispersion of results with the ETF 7% better in the case of Natural Gas and 8.5% worse in the case of Wheat.  (Disclaimer: Past performance is not necessarily indicative of future results).

EFT vs futures 2013(Disclaimer: Past performance is not necessarily indicative of future results)

For many investors, however; the comparison of how to buy commodity exposure is becoming a moot point after reading article upon article  this year about the end of the commodity “Super Cycle.” The problem is the nature of these types of investments , which enable them to make money only when prices rise (and then only after paying the roll yield if there is one). You can see that it wasn’t a profitable venture investing in commodities rising in 2013, with a -12.43% average return over six commodity markets, and a -13.64% average return over six commodity ETF’s nothing to get too excited about.

Which leads us to the widely known secret that many are still unaware of… there’s another way to invest in the commodity market.  It’s a “Long/Short Strategy” which can profit from rising or falling commodity markets, and just happens to be a popular strategy in a subset of the Managed Futures space call Ag Trading.  The BarclayHedge Ag Trader Index tracks these traders, and over the course of 2013, they managed to show a +2.90% return for the year while direct commodity exposure struggled. (Disclaimer: Past performance is not necessarily indicative of future results).

Could next year be different? Absolutely… Ag Traders will have losing months and years just like any other investment, and they may not catch a huge up trend in commodities like the direct exposure will. But better performance when commodities are falling sure seems to make up for any missed upside, in our opinion.

P.S. – Is a  2nd “super-cycle” just around the corner.










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DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.

The entries on this blog are intended to further subscribers understanding, education, and – at times- enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex, and is not intended as investment advice, or an offer or solicitation for the purchase or sale of any financial instrument. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

*The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on Attain’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by Attain, and averaging of various indices designed to track said asset classes.

It should be noted that past market performance is not indicative of future market movement.No market data or other information is warranted by Attain Capital Management as to completeness or accuracy, express or implied, and is subject to change without notice.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.