Top 10 Commodity ETFs Of 2015

The top performers were dominated by single-commodity funds.

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Reviewed by: Sumit Roy
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Edited by: Sumit Roy

After slipping for four-straight years, there's still no sign of a major turnaround in commodity markets so far in 2015.

 

Of all of the broad-based commodity ETFs, each of them finished the first half of the year in the red, with losses ranging from about 1 percent for the iPath Pure Beta Broad Commodity ETN (BCM | C-34) to 5.7 percent for the First Trust Global Tactical Commodity Strategy (FTGC | C-29).

 

Still, a handful of other commodity exchange-traded funds did manage to finish the first half of the year in the green, which is a feat in and of itself given the head winds the asset class is facing in the form of booming supplies and the slowdown in China. Returns quotes below are as of June 30

 

10. RBS-Rogers Enhanced Energy ETN (RGRE| F-63) +1.62%

After plunging late last year, energy prices stabilized during the first half of the year, allowing the broad-based energy ETN, RGRE, to eke out a gain. By optimizing contract selection based on various factors, RGRE aims for outperformance against the typical front-month roll strategy. However, the product has failed to attract investor interest, and remains tiny, with less than $3 million in assets.

 

9. ELEMENTS MLCX Grains - Total Return ETN (GRU | D-93) +2.27%

After trading flat to lower during most of the first half, grain prices spiked dramatically during June, boosting GRU into the green. The USDA lowered its outlook for supplies after excess rains in the Midwest growing regions raised concerns about damage to crops. This fund also has a meager $8 million in assets under management.

 

8. Credit Suisse X-Links Silver Shares Covered Call ETN (SLVO | D-41) +4.16%

Silver prices didn't do much during the first half of the year. A lack of catalysts kept prices flat, and most of the ETFs tied to the metal were likewise unchanged in the period. However, SLVO managed to bolster returns with its unique strategy of selling covered calls.

 

Indeed, such a covered-call strategy tends to work best when volatility is low, as has been the case in the silver market. SLVO's strategy entails selling 6 percent out-of-the-money covered calls on its silver position each month. This generates cash flow for investors, but limits upside should silver prices rise beyond the strike price of the calls. The fund has $26.5 million in AUM.

 

7. iPath Pure Beta Cotton ETN (CTNN | D-81) +4.83%

Two big supply-side stories kept the cotton market on edge during the first half, with the bullish side ultimately winning out. Weighing on the market was news from China that it would sell off a portion of official inventories as the government continues to unwind its state reserves program. At 10 million metric tons, China's official reserves of cotton are the largest in the world, representing 40 percent of the global total, according to Reuters.

 

However, offsetting the news from China were data from the USDA that showed U.S. farmers would plant the least amount of cotton this year since 1983.

 

CTNN is one of two cotton exchange-traded cotton products on the market. The ETN attempts to boost returns by buying futures contracts with varying expiration dates. In this case, the optimized strategy underperformed the front-month roll strategy of the other cotton ETN. However, its scant AUM of $2.6 million and a trading spread of 5.34 percent make it notable.

 

 

6. AdvisorShares Gartman Gold/Euro (GEUR | D-28) +5.91%

One trade that worked last year and continues to work this year is to short the euro. After starting the year at 1.21 against the U.S. dollar, the euro ended June around 1.11, a loss of 8 percent.

 

Some analysts, most notably Dennis Gartman, believe that the short euro trade should be paired with a long gold trade. This gives an investor exposure to "gold in euros," as he likes to say. With gold down so far in 2015, this trade hasn't been ideal. At 5.9 percent, an investor in GEUR underperformed the return of simply shorting the euro. Still, that doesn't necessarily make GEUR, with $17 million in AUM, a bad bet. After all, it gives investors the benefits of owning gold, along with its feature as a potential hedge against market tail risks.

 

5. United States Diesel-Heating Oil (UHN | D-94) +8.06%

With prices tanking in recent days, it may be surprising to hear that crude oil finished the first half of 2015 to the upside. WTI, the main U.S. crude oil benchmark, increased 11.6 percent through June.

 

However, in a stark illustration of just how important the shape of the futures curve is to commodity exchange-traded funds, the largest oil-linked ETF, the United States Oil Fund (USO | B-100), fell by 2.4 percent in that same period.

 

That huge underperformance points to just how detrimental contango can be to the front-month rolling strategy of any ETF. By the same token, the opposite situation—backwardation—can aid investors' returns. UHN was a beneficiary of this situation, when the futures curve is downward sloping.

 

Of course, backwardation isn't the only thing that supported the diesel and heating oil ETF with $5.6 million in AUM: Booming demand and relatively tight refining capacity kept support under refined product prices. According to the Energy Information Administration, U.S. demand for distillates was up by 4.1 percent from a year ago during the past month.

 

4. iPath Bloomberg Cotton Subindex Total Return ETN (BAL | C-93) +10.76%

The second cotton-focused product to make the top 10 list, BAL handily outperformed the aforementioned CTNN. In this case, the front-month rolling strategy of BAL was a boon for investors, as the near-term contract rose more than contracts further out on the futures curve. With $18.6 million in AUM and a trading spread of 0.18 percent, it is also easier to trade than CTNN.

 

 

3. iPath Bloomberg Cocoa Subindex Total Return ETN (NIB | C-96) +11.79%

Weather-related supply woes in the two largest cocoa-producing countries, Ivory Coast and Ghana, pushed cocoa prices up this year. Ghana, the world's No. 2 producer, is expecting to produce 750,000 metric tons of cocoa, down from an initial estimate of 1 million tons, according to Reuters.

 

The two cocoa products on the market delivered similar returns in the first half. NIB, which uses a front-month roll strategy, slightly underperformed. However, it is the larger of the two ETNs, with assets under management of about $23 million.

 

 2. iPath Pure Beta Cocoa ETN (CHOC | D-93) +12.87%

CHOC fared a bit better than its cocoa counterpart NIB. CHOC's strategy is to optimize its futures contracts, which paid off slightly this time. That said, the ETP is the smaller of the two, with only $7 million in assets.

 

1. United States Gasoline (UGA | C-98) +20.67%

Like the aforementioned diesel/heating oil fund UHN, the gasoline fund UGA was another big winner during the first half of 2015. And just as in the diesel market, demand provided support. According to the EIA, gasoline demand was up a notable 6.4 percent year-over-year during the past month.

 

Another thing going for gasoline was seasonality. With temperatures warming and vacation season in full swing, the spring and summer months are typically the peak period for gasoline consumption. That's especially the case this year, as lower prices have given consumers an excuse to hop in their cars for longer trips. UGA also boasts the largest AUM of any of the top performers, $101 million, and a trading spread of 0.12 percent.
 

 

Top Gainers (%)

TickerFundH1 2015 TRR
 UGA United States Gasoline20.67
 CHOC iPath Pure Beta Cocoa ETN12.87
 NIB iPath Bloomberg Cocoa Subindex Total Return ETN11.79
 BAL iPath Bloomberg Cotton Subindex Total Return ETN10.76
 UHN United States Diesel-Heating Oil8.06
 GEUR AdvisorShares Gartman Gold/Euro5.91
 CTNN iPath Pure Beta Cotton ETN4.83
 SLVO Credit Suisse X-Links Silver Shares Covered Call ETN4.16
 GRU ELEMENTS MLCX Grains - Total Return ETN2.27
 RGRE RBS Rogers Enhanced Energy ETN1.62

 

Sumit Roy is the senior ETF analyst for etf.com, where he's worked for 12 years. Before joining the company, Roy was the managing editor and commodities analyst for Hard Assets Investor. He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing pickleball and snowboarding.