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2 Winning Commodity ETFs for the Worst Q3

Sweta Killa

Commodities across the board, ranging from natural resources to metals, are trapped in a vicious trading circle since the start of 2015. In particular, the S&P GSCI Total Return tumbled nearly 19.3% in Q3, representing the fifth worst quarter and the third worst third quarter since 1970. With this, the index is on to the verge of recording the sixth worst year after 2008.


This is especially true in the backdrop of a strong dollar, global growth concerns, a lower oil price, global supply glut and waning demand that have dampened the appeal for the commodities. The major culprit is the persistent slowdown in the world’s largest buyer of raw materials – China – that has raised concerns over the health of the world’s second-largest economy and its impact on global growth.


In this backdrop, there are still some winners in this space that performed remarkably well in the last quarter. Below, we have highlighted two such ETFs that could act as better plays in the current market and could make for solid picks for the rest of the fall (read: 2 Commodity ETFs Surging Double Digits in 1H):


iPath Global Carbon ETN (GRN) – Up 10.3%


The countries across the globe are heading toward cleaning the climate by building a ‘low-carbon’ economy and fighting hazardous consequences due to the presence of greenhouse gases in the atmosphere. Steeped-up efforts of President Barrack Obama for climate change and increasing carbon credit grants are driving the industry’s growth and have been building up a positive momentum in the space.


As a result, the only product in the space – GRN – showed impressive gains of about 10.3% last quarter. The ETN follows the Barclays Global Carbon Index Total Return, which measures the performance of the most highly traded carbon-related credit plans. The note holds around 99.23% of its total assets in futures contracts of EXC Emission Reduction Units (ERUs) and the remaining in futures contracts of EXC Certified Emission Reductions (CERs). The ETN has total assets of $2.5 million while volume is extremely light at around 2,000 shares a day. It charges investors 75 bps in fees and expenses (see: all the Energy ETFs here).


iPath Dow Jones-UBS Tin Subindex Total Return ETN (JJT) – Up 8.2%


Tin is the sole commodity that surged last quarter as demand for the metal continues to outpace supply. Tightening export rules in Indonesia to curb illegal mining and declining output in Myanmar due to falling ore grades has disrupted the overall supply of tin. Notably, Indonesia is the world’s second largest producer and the biggest exporter of tin, accounting for more than one-third of the global tin supplies.


On the demand side, the increased usage of solder in electronics and electrical goods boosted the demand for tin as these account over half of total demand. The favorable demand and supply dynamics led to the rise in tin prices. As a result, JJT, which provides exposure through an unleveraged investment in the futures contracts on tin, gained 8.2% during the last quarter (read: Best and Worst Performing ETFs of September).


The product tracks the Dow Jones-UBS Tin Subindex Total Return, which consists of one futures contract on the commodity. The product has amassed $2 million in AUM and trades in paltry volume of under 1,000 shares, which increases the total cost of trading beyond the expense ratio of 0.75%. However, the product has a Zacks Rank of 4 or ‘Sell’ rating with a High risk outlook, suggesting that some pain might be in store for the long term.


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IPATH-BB TIN (JJT): ETF Research Reports
 
IPATH-GLBL CRBN (GRN): ETF Research Reports
 
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