Top 10 Best Commodity ETF Plays YTD

February 20, 2014

Commodities of all stripes are showing their muscle so far this year.

A lot was said in 2013 about the end of the commodities super cycle, and yet, so far this year, commodities markets have been rallying across the board.This despite generalized weakness in emerging economies—those markets largely known for their natural resources.

That's because several commodities markets are currently faced with supply/demand imbalances, many linked to an unusually cold winter in the northern hemisphere.

Natural gas prices, for instance, have now risen more than 46 percent year-to-date on the back of a record-breaking winter that has depleted supplies across the U.S. Silver prices, too, have been on the rise—up now nearly 11.5 percent year-to-date—on strong demand.

Precious metals, coffee, and even corn and soybeans—crops that have yet to be planted in the U.S.—are all on the rise as well, as the latest tally of commodities performance at shows.

We list here the top 10 best-performing commodities ETFs and ETNs so far in 2014, in ascending order.

At No. 10, No. 9 and No. 8 there are silver ETPs, with the ETRACS CMCI Silver Total Return ETN (USV | C-46) at No. 10, and which  is up 11.8 percent year-to-date.

USV, which is an ETN, invests in five different futures contracts of varying maturities between three months and two years.

“By using a variety of futures contracts, ranging from 3 months to 2 years in maturity, the note’s daily pattern of returns has little in common with the spot price of the metal,” Analytics said of the ETN. “Furthermore, the futures contracts have recently been in a persistent state of contango, which has led the note to consistently underperform the price of silver.”

Indeed, it currently costs investors about 1.2 percent annualized to roll front-month silver contracts, according to the latest Contango Report. Silver prices are up 11.5 percent so far this year.

USV, backed by UBS, is small at $12 million in assets, and costs 0.40 percent in expense ratio, plus an average trading spread of 72 basis points. That’s puts its cost of ownership at roughly $112 per $10,000 invested a year.  Again, USV is a debt security backed by the creditworthiness of UBS.

Right above USV are the ETFS Physical Silver ETF (SIVR | A-100) and the iShares Silver Trust (SLV | A-99), each up 12.24 percent year-to-date.

Both strategies, unlike USV, are physical silver ETFs.

SIVR tracks the spot price of silver—less holding costs—by holding silver bullion in HSBC vaults, in a trust that has gathered nearly $380 million in assets. It has an all-in cost of roughly 38 basis points a year.

SLV, meanwhile, is the behemoth in the space with nearly $6.9 billion in assets, even though its all-in cost clocks in around 55 basis points a year—slightly higher than SIVR’s.  Like SIVR, SLV also hold physical silver in London vaults.

iShares Silver Trust


At No. 7, the optimized PowerShares DB Silver ETF (DBS | B-43) is up 12.60 percent year-to-date.

DBS stands out relatively to other silver ETFs for two reasons. First, the fund invests in futures, rather than actual silver, and optimizes its silver futures contract selection based on the shape of the futures curve to minimize contango.

Secondly, DBS is among the most expensive silver ETFs in the market today, costing 0.74 percent in expense ratio, and trading, on average, with a spread of 10 basis points.

DBS has $36.5 million in assets.

iShares Silver Trust


At No. 6, No. 5 and No. 4 there are natural gas funds, with the United States 12 Month Natural Gas Fund (UNL | A-100) at No. 6. UNL is up 14.7 percent year-to-date.

UNL holds the 12 nearest-month NYMEX natural gas futures contracts in equal weights. The equal weighting methodology is designed to mitigate the impact of contango on returns, although the natural gas market is currently in backwardation. The nearby futures contract is the most expensive on the curve.

In fact, investors are currently netting 37.01 percent annualized to roll front-month natural gas contracts, according to our latest contango report. Natural gas prices have now rallied more than 46 percent since the beginning of the year.

UNL has nearly $26 million in assets, and has an all-in cost of about $114 per $10,000 invested a year.

The small, $2-million-in-assets Teucrium Natural Gas ETF (NAGS | A) comes in at No. 5 with gains of 17.3 percent year-to-date.

The fund invests in four futures contracts in a strategy that’s also designed to mitigate contango, but it costs 1.48 percent in expense ratio, and it trades on average with a spread of nearly 1 percent, making this fund expensive to hold.

At No. 4, the United States Natural Gas Fund (UNG | A-78) is up 30.55 percent year-to-date.

UNG invests only in the near-month natural gas futures contract. The rolling position benefits from backwardation in the market, which is currently at historically steep levels.

UNG is also massively liquid, trading more than $360 million on average a day in the past 60 days, putting its trading spread at an average of 5 basis points. Its all-in cost is currently $105 per $10,000 invested.

iShares Silver Trust


At No. 3 and No. 2 there are two coffee ETNs, with the iPath Pure Beta Coffee ETN (CAFE | B-95) at No. 2 on gains of nearly 48 percent year-to-date.

After bleeding roughly two-thirds of value in a two-year period, coffee prices are now rising. The boost comes from weather concerns in coffee-producing Brazil at a time when demand from key importers such as Europe is on the rise.

Arabica coffee, for instance, is up 55 percent year-to-date, according to data. Robusta coffee is up 18 percent in the same period.

What's more, the coffee market is in contango, costing investors about 10.33 percent annualized to roll front-month coffee contracts, according to our data.

CAFE tracks an index of a single coffee futures contract whose expiration date is chosen to mitigate contango in an optimized exposure. The ETN, which is backed by Barclays Capital, has under $11 million in assets, and costs investors 0.85 percent in expense ratio plus an average trading spread of 28 basis points.

At No. 2, iPath Dow Jones-UBS Coffee Total Return ETN (JO | B-92) is up 52.21 percent year-to-date.

JO tracks a single, front-month coffee futures contract. It and CAFE are the only two ETPs to tap exclusively into the coffee market. JO is larger and cheaper than competing CAFE.

By design, JO serves up direct exposure to the short-term supply and demand dynamics of the coffee market, which are currently reflecting inventory concerns amid supply shortages. The $184 million ETN, also backed by Barclays, comes with an all-in cost of about 89 basis points.

iShares Silver Trust


At No. 1, the best-performing commodities ETP is the iPath Global Carbon ETN (GRN | F-36), which is up 52.73 percent year-to-date.

Carbon emissions credit prices are now up 42 percent since the beginning of the year. GRN serves up exposure to global carbon markets by tracking a Barclays index that measures the performance of emissions units issued under the Kyoto protocol.

But GRN is a highly illiquid strategy, and a costly one at that. All-in expenses clock in at 6.75 percent a year once you consider the average trading spread of this security. The ETN remains small with only $2.65 million in assets.

“Unfortunately for GRN, there’s much deserved skepticism about the viability of that carbon market,” our ETF Analytics fund report says. “While past performance shouldn’t be seen as predictive of future performance, it’s hard to ignore the fact that this fund is down more than 90 percent since inception.”

iShares Silver Trust

Charts courtesy of


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