Neil Collins at Reuters offers up another instance of a commodity-linked fund, in this case a fund that’s supposed to track the Goldman Sachs index doing a horrible job of it. While the index is up 45% this year, the tracker is up just 12%. Of course, this is a lesson people invested in UNG, the natural gas ETF, are well aware of.
In theory, commodity trackers should be as attractive as share index trackers. Pooled funds allow investors to buy an index at low cost, so why not do the same with commodities?
Standard & Poors reckons that $100 billion is invested in commodity tracker funds, and it is only now that the problems are becoming clear. Unlike shares, commodities need space and insurance for storage, so the funds buy the commodities forward, selling them before having to take physical delivery and buying forward again. Because they have strict rules about how and when they roll the contracts, the traders can see the forced sellers (and buyers) coming a mile off, and move their prices accordingly. Read the whole thing >