Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Big Problems with commodity ETF funds
Old 07-26-2010, 12:29 PM   #1
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Big Problems with commodity ETF funds

Business week ran an article last week showing how ETF commodity funds are being Cherry Picked by commodity traders.

Evidently these commodity ETF funds trade in and out of short term commodity contracts every month on only certain days (eg. the 5th-10th of each month). The traders trade against such buys/sells and make big money on these automated programs much to the detriment of anyone holding commodity ETFs. This is a rigged game that goes by the name Contago.

Quote:
Lured by the idea of profiting from raw materials, investors put $277 billion into commodity ETFs and related securities by the end of 2009. Then they noticed a problem: When commodities go up, the commodity ETFs often don't
Amber Waves of Pain - BusinessWeek
__________________

__________________
MasterBlaster is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-26-2010, 03:30 PM   #2
Recycles dryer sheets
Culture's Avatar
 
Join Date: Apr 2007
Posts: 491
If you ever wondered if you should not invest in product that you do not understand, this article will answer the question. Amazing.
__________________

__________________
Culture is offline   Reply With Quote
Old 07-26-2010, 03:56 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
 
Join Date: Sep 2005
Posts: 5,381
Yup, these commodity funds haven't worked out as people hoped for a variety of reasons. My favorite is the persistent contago in the market that forces these funds to buy the forward month at a high price and settle it closer to the lower prompt month price. All the historic studies showing how beneficial commodity forwards were to portfolios looked at periods dominated by backwardation. Many academics assumed that backwardation was a structural feature of the market and that it was free money to be harvested by investors as "insurance premiums." It's funny how things stop working the way they used to once investment products or strategies become mainstream. Now instead of receiving the premium, investors are paying them. Ha.
__________________
Retired early, traveling perpetually.
Gone4Good is offline   Reply With Quote
Old 07-26-2010, 04:42 PM   #4
Recycles dryer sheets
Culture's Avatar
 
Join Date: Apr 2007
Posts: 491
I think this is related to Efficient Market Hypothesis. You can't make money on a given efficiency once people realize you can make money on it.
__________________
Culture is offline   Reply With Quote
Old 07-26-2010, 04:55 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Feb 2007
Posts: 5,072
Thanks for the link.
__________________
chinaco is offline   Reply With Quote
Old 07-27-2010, 02:09 PM   #6
Recycles dryer sheets
Culture's Avatar
 
Join Date: Apr 2007
Posts: 491
Make that:

"I think this is related to Efficient Market Hypothesis. You can't make money on a given inefficiency once people realize you can make money on it."
__________________

__________________
Culture is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
commodity ETF questions joesxm3 FIRE and Money 9 07-15-2008 09:04 PM
Commodity investment dasinsin FIRE and Money 20 12-22-2006 06:20 PM
New Commodity Fund JPatrick FIRE and Money 5 02-04-2006 07:02 PM

 

 
All times are GMT -6. The time now is 07:39 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.