As we once again visit the performance of commodity ETFs versus the cash and future markets, the results are not surprising. Save corn, ETFs continue to underperform futures, leading us to echo our advice of buying 12 month futures and rolling them annually instead of trying to get long commodity exposure via ETFs. This is especially pronounced with Crude. But right now, the majority of ETF news is circulating around silver and its astronomical ascent, so we decided to take a look at the performance of a long-only silver futures ETF- Powershares DB Silver (DBS)- as well.
You’ll notice that even with (arguably) the hottest commodity out there at the moment, the silver ETF underperforms. This is of particular concern with silver, as, historically, it has a nasty tendency of falling just as fast as it climbs. The last time silver was at these levels was in 1980, and the chart below demonstrates the rate of its descent then [past performance is not necessarily indicative of future performance]. If you’re in a long-only silver ETF and silver gives a repeat performance of its last climb, you’ll be far from happy with the results.
This is yet another case for investing in managed futures. In futures, you can capitalize on surges such as this one, but if the trend shifts, you can still generate returns by going short- though timing is everything. Unlike trying to invest in futures contracts on your own and worrying about when to get out of your long position, in managed futures, you have pros who (generally speaking) have risk thresholds and will ultimately be looking for opportunities to go short the market to take profits or cut losses. For example, over the past 2 days, just as Silver has been spiking up, 2 of the managers we track (James River Capital Corp and Integrated Managed Futures Corp) have been lightening their long exposure to Silver…is the fact that the pros are getting out a sign that a top is near?? Time will tell…
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.
Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.
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