Do Not Buy Commodity ETFs: BusinessWeek's Gloom and Doom
BusinessWeek's cover this past week was eye catching and printed three times “Do Not Buy Commodity ETFs” and then encouraged subscribers to read more about “America’s Worst Investment” inside the issue. What to make of it and do they really have the story right, are the U.S. Natural Gas Fund (NYSE:UNG) and U.S. Oil Fund (NYSE:USO) garbage investments?
We turn to ETFdb.com, they tackle the BusinessWeek story and describe five things the magazine didn't tell you about Commodity ETFs. Eric Dutram argues that "commodity ETFs represent one of the most diverse market segments available to investors today."
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Five Things BusinessWeek Didn’t Tell You About Commodity ETFs (ETFdb.com | Eric Dutram)
As a long-time subscriber to BusinessWeek, I generally enjoy their content and find their stories both informative and interesting. However, last week’s cover story entitled “Amber Waves of Pain” was unlike anything I had ever read by the company before. On the cover, the weekly magazine stated three times “Do Not Buy Commodity ETFs” and then encouraged subscribers to read more about “America’s Worst Investment” inside the issue. Needless to say, I was intrigued to see how a the magazine could make such a blanket statement over such a large segment of the market which by BusinessWeek’s own estimation has seen $277 billion in inflows by the end of last year.
Admittedly, the magazine made a pretty good case of the problems which some of the largest futures-based commodity funds deal with. The article started by highlighting several issues which investors have become very familiar with in recent years such as pre-rolling and contango. However, some could argue that the magazine took the impact of commodity ETFs to the extreme, indirectly blaming the funds for a rise in wheat prices which has led to higher costs for baked goods, to higher fuel costs which has led to checked baggage fees for airlines. After suggesting that commodity ETF investors are partly to blame for these higher prices, the article went on to suggest that commodity ETFs in general are a horrible investment decision. “You walk into a casino, you expect to lose money,” says Greg Forero, former director of commodities trading at UBS. “It’s the same with these products. You’re playing a game with a very high rake, a very high house advantage, and you’re not the house.”