13 December 2012

Co-Authors

Alex Kemmsies

Associate

Justin Schack

Managing Director

Rosenblatt Securities Inc.
New York +1 212 607 3100
Dublin +353 1 855 9125

Inquiries to
globalexchangeanalysis@rblt.com

TRADING TALK
Rosenblatt’s Monthly ETP Review: November

For Passive Investors, Rolling Commodities Gather a Loss

—Wall Street Journal

…The problem with exchange-traded funds, or ETFs, backed by commodity futures is that those futures expire and positions have to be rolled forward into new ones. This can sometimes be helpful, providing a positive "roll yield" when the curve slopes down and longer-dated futures cost less than near-term ones. But that usually only happens when physical commodity markets are tight and people are willing to pay up for near-term supply.

Our Take: Some ETPs are having a harder time than others dealing with the spread risk that comes from rolling expiring futures positions. Passively managed commodity ETPs, in particular, have been hurt in recent years by supply and demand swings that have brought on unexpected bouts of backwardation and contango in many commodity futures contracts. Poor performance related to this roll risk has made passive commodity ETPs less attractive than actively managed ETPs that limit spread risk by diversifying into other assets, such as shares of natural-resources companies. This also has boosted the growing demand for actively managed ETPs generally.

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