Broad Commodities Futures are part of a selection of themes focused on "Commodities"
Listed in the Pininvest Library, this category of Funds by Smart β also includes specialized Commodities themes with a focus on agriculture, metals, physical precious metals and energy
Broad Commodities Futures ETFs, holding futures and other derivative instruments, are on a strong upward trend
Most ETFs, taxed as open-ended funds, are structured in two distinct ways
- no-K1 ETFs offer a popular work-around the tax filing, combine a domestic cash investment with a 25% holding in an off-shore subsidiary tracking the relevant futures index
- 'commodity pools' - the ETF is a limited partnership, treating the investors as partners of the venture, which carries tax advantages but requires the filing of Schedule K1 tax forms
Alternatively, gain exposure to the commodity markets with Exchange Traded Notes (ETNs)
ETNs are bonds issued by a financial institution; designed to track the returns of an index, these debt instruments do not hold any underlying assets
The benefit for the ETN holders is the bank's promise to pay the exact return on an index (minus expenses) over a certain period of time and return the principal of the investment at maturity
The risks are two-fold
- credit risk - the issuer defaults and its commitment to repay the note is not honored
- issuance risk - supply of notes is determined by the issuer who may or may not respond to investor demand because of regulatory constraints or internal limits to by the issuer - because of which the price of the note could disconnect from the value of the referenced index
Trading activity of ETNs varies widely, exposing investors to potentially large bid-ask spreads
The issuer may decide to call (close) an ETN early or (worse) delist a note from national exchange
Check funds for momentum, referencing the latest 5-day trend (by duration) against the most recent monthly trend
By controlling for performance of the constituents of the selection over short time frames, shifts in market anticipations will be highlighted
Check performance and volatility from 1 week to 3 months - on tab at top right of your screen