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Commodities, Roll Yield and Contango
Commodities, Roll Yield and Contango - Trends
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Investors love commodity exchange traded funds, and with good reason. Aside from the usual benefits that ETFs offer, commodity funds deliver the kind of exposure to commodities that would otherwise be very challenging, very expensive or both. But not all commodity funds are created equal, and one of the most important types to understand are those that hold futures contracts. One of the most popular commodity ETF types are those that hold and trade futures contracts for the underlying commodity. Futures are a promise to buy or sell a commodity for a set price on a date that’s in the near future. None of the ETFs that hold ...
Investing in commodities means investing in futures. And futures mean the mysteries of contango and backwardation. We cover this all the time here at HardAssetsInvestor.com, and with good reason. Rolling forward a futures contract can be a tremendous source of loss or gain for an investor, often overwhelming the returns that changes in spot price might imply. Usually, we’re worried about contango – the crippling headwind faced by most commodities these days, where it costs more to buy next month’s contract than it does today’s. The effect on indexes has been so pronounced that many firms ... Read More