Posted on 07/07/2011
The second quarter of 2011 was certainly not kind to the Commodity asset class. Looking at the main commodity indexes, the performance was weak (if not ugly) as all the major commodity indexes finished solidly in the red for the quarter. The quarter had started off on a positive note, adding to what had been a productive, positive return-yielding first quarter. But the upward trajectory was quickly halted by mid to late April as the commodity wheels were thrown into reverse. In all, the major commodity indexes finished down roughly -5% to -8%, with the worst performance coming from the S&P Goldman Sachs Commodity Index (GN/Y), which fell -7.82%. As a sidebar, remember that the DBLCIX and DJAIG are total return indexes, so the effects of contango (and backwardation) are already incorporated into their returns, so as a result it is not unusual for them to perform worse (differently) than the spot indexes, such as the GNX/Y, CR/Y, and UV/Y. And with Crude Oil (CL/) dropping -11.01% for Q2, it had a dampening effect on all the commodity indexes, with the exception being UV/Y, which is equal-weighted and has minimal exposure to Crude compared to the other indexes, but UV/Y had its own problems due to Softs (Cotton) and Grains downward pressure during the quarter. But as much of a roller coaster ride as it has been so far in 2011, the end result YTD is still palatable, as most all the major commodity indexes are in the black, with the Deutsche Bank Liquid Commodity Index having the best showing at +6.03%.
In addition to the commodity updates above, we also wanted to provide a brief breakdown of several commodity index ETF's/ETN's by their sector weightings. As you can see below, there are vast differences in weightings across these six index funds. This is material, as it can greatly affect performance. To be more specific, in the image below we show you six different commodity index products, and then display their respective weightings in: Energy, Precious Metals, Industrial Metals, Softs, Grains, and Livestock. If we were to look at the Greenhaven Commodity Index (GCC), we see that it has roughly a 17.64% weighting to Energy, while the iPATH GSCI Total Return Index ETN (GSP) has a 69.17% weighting to Energy. Clearly, Energy (and specifically Crude Oil) drives the performance of the GSP. This shows up the second quarter's performance for GSP, as it was down -9.5% in the second quarter, compared to the GCC's loss of -4.91%, as Crude Oil is down -11% for the quarter. The point here is that it is important to be aware of what you own -- to know what the underlying holdings and weights are for a given ETF.