Which ETFs To Avoid, Part 2

August 07, 2007

Your conversation on CNBC about oil and commodities ETF was interesting, Jim. If I had a dollar for every time someone asked me which oil-focused ETF did the best job tracking the price of crude, I'd be richer than a roughneck on payday.

The thing people don't seem to get is: you don't want to track the price of crude oil. Especially now.

Every futures-based investment should earn collateral interest income, which means a guaranteed 5% return above and beyond the spot price. And as you mentioned, the oil futures markets are now in backwardation, meaning the roll yield is positive. If that stays true, oil futures will easily outpace spot oil going forward.

I'm worried that people are JUST beginning to understand contango now that the markets are switching to backwardation.

All of which brings me back to the core question CNBC asked yesterday: Which ETFs should I avoid?

To my mind, the answer starts with, "All the ones you don't understand..."


Find your next ETF

Reset All