Should you invest in a Commodity Futures ETF?

How to analyze commodity charts so you can decide whether or not to invest in a Commodity Futures ETF.

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If you are a new trader and are curious about buying an ETF based on commodity futures you better do your homework before you jump in. {See: Understanding Commodities Futures and What are ETFs}.

The general rule of thumb is that commodity futures ETF’s can lower your investment risk since they can allow an investor to purchase futures in various types of commodities or perhaps a bunch of futures contracts in one sector such as oil or gold. However, what happens if the commodity market as a whole takes a serious beating?


The Current Trends of Commodities

I randomly decided to select some of the “top ranking commodity ETFs” based on the so called “experts”. What I found was unsettling.

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Above is the chart for the ETF known as DBC. The Fund is meant for investors who desire an economical and easy way to invest in commodity futures. The Index is a composed of futures contracts for 14 commodities that are traded heavily and are viewed by many as the most noteworthy commodities in the world.

As you can see in the chart, if you had purchased this in November of 2014 and sold it in October of 2015 you would not be thrilled with the results.

Let’s see how another random commodity futures ETF performed.

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This ETF is known as DBB and is made up of futures contracts on some of the most popular metals that are needed for everyday life such as aluminum, zinc and copper. The results were just as poor. If you would have bought DBB in November of 2014 you may have had hope in May of 2015 but would have ended up in bad shape if you sold it in October of 2015.

Let’s look at another randomly selected futures and commodities based ETF.

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This commodity driven ETF is known as DBB.  DBB is a fund made for investors who want affordable and easy ways to invest in commodity futures. The Index is composed composed of futures contracts on some of the most densely traded energy commodities in the world. Some example include light sweet crude oil, heating oil, crude oil, gasoline and natural gas.

Once again, we have a chart with less than desirable numbers. Are you seeing the pattern here? If commodities are not performing well, then the commodity ETFs follow the same pattern and will also not perform well.  Even when you lower your risk through buying an ETF, you are still likely to lose money when a commodity is not performing well.

What you can Do when a Commodity Futures ETF is Not Right for You

One of the things you can do is seek out inverse commodity Futures ETF’s. I am now going to randomly select the first inverse fund that pops up on an internet search and see what we find.

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Now this is more like it!  The fund is actually doing well. Now I can give you more examples of index funds but I feel there is no need to keep pounding you with commodity futures ETF charts!

Here’s what is important to know: You cannot always minimize your risk simply by buying an ETF. You have to pay attention to futures and commodity trends. Once you find the trends you can begin to formulate your own ETF based futures commodity trading strategy.

As always, please do not assume that I want you to invest in inverse commodity and futures based ETFs. The trends I showed could reverse at any time. This study is for educational and entertainment purposes only. I do not own any of these stocks shown above, nor would I say you should buy or sell them – they are for example purposes only! I simply want to open up your mind to various trading possibilities. It is up to you to do your own research and see what you can find in regards to trading a commodity futures ETF.

If you have any comments or would like to share your thoughts and opinions on trading ETFs that focus on commodities and futures please let us know in the comments below!

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