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Worst 10 Commodity ETFs Of 2015

Sumit Roy
Commodities and their related ETFs are free-falling. After a brief period of calm during the past few months, major commodities are sinking once again. From metals to energy to agriculture, every segment of the market remains extremely weak.

While gasoline, cocoa, cotton and a few other commodities performed relatively well during the first half of the year, for the most part, the asset class continued to struggle. Indeed, while it only took a gain of 1.6 percent to make the top 10 performers list for commodity ETFs, it took a decline of nearly 16 percent to make this worst performers list.

 

All of the ETFs on this list are single-commodity products, with metals and soft commodities taking up nine of the 10 spots. Returns are as of June 30.

 

10. ETFS Physical Palladium (PALL | A-100) -15.92 percent

One of the best-performing commodities last year, palladium, has taken it on the chin so far this year. A swift recovery in South African supplies following the crippling strikes of 2014 left many traders surprised.

 

Johnson Matthey anticipates that the country's output will rebound 17 percent to a four-year high this year, narrowing the supply and demand deficit to a mere 100,000 ounces, a sharp decline from 1.8 million ounces last year.

 

The only pure-play palladium ETF on the market, PALL followed palladium spot prices tick-for-tick lower. However, the fund still boasts a respectable asset base of $306 million.

 

9. iPath Bloomberg Sugar Subindex Total Return ETN (SGG | C-90) -17.42 percent

With supply on track to outpace demand for a fifth-straight year, sugar plunged to a six-year low, fueling losses in the three ETFs that track the commodity. The USDA anticipates that global stockpiles of sugar will hit record highs this season, with no end in sight to the glut.

 

Weakness in the real—the currency of No. 1 producer Brazil—has bolstered farmers' earnings despite the decline in prices. The real has lost nearly a third of its value against the U.S. dollar in the past year, and more than half its value since 2011, making Brazilian producers more competitive.

 

Of the three sugar ETFs that are out there, SGG was the "least bad" of the bunch. The ETN employs a basic front-month rolling strategy and is the largest of the trio, with $58 million in AUM.

 

8. Teucrium Sugar (CANE | F) -20.12 percent

Unlike SGG, CANE doesn't hold the front-month sugar contract at all, but instead holds a basket of three contracts: the second-to-expire contract; the third-to-expire contract; and the futures contract "expiring in the March following the expiration of the third-to-expire contract."

 

This laddered approach resulted in a modest underperformance against SGG during the first six months of the year. CANE is also a much smaller product, with only $4 million in assets under management.

 

 

7. iPath Pure Beta Sugar ETN (SGAR | D-73) -20.49 percent

The biggest laggard and the smallest of the three sugar products, SGAR has a mere $1 million in assets. The ETN attempts to maximize returns by buying futures contracts with varying expiration dates. In this case, the optimized strategy didn't pay off.

 

6. iPath Pure Beta Nickel ETN (NINI | D-99) -21.32 percent

Nickel saw its fortunes turn 180 degrees from last year to this year as the once-high-flying base metal plummeted to the lowest levels since 2009. After topping $20,000 in metric tons during the middle of 2014, prices are now closer to the $10,000 level.

 

Indonesia, once the largest supplier of nickel ore, abruptly banned exports of ore last year in an effort to build up a smelting and processing industry within the country. However, other producers—such as the Philippines—quickly filled the gap, according to a report from Reuters. On the demand side, nickel is hurting from weakness in the stainless steel industry, which makes up 70 percent of consumption. Ongoing concerns about the health of China's economy don't help matters.

 

Of the two nickel-focused ETPs on the market, the optimized NINI fared slightly better. Even so, the ETN has less than $1 million in assets, creating potential liquidity issues for investors.

 

5. iPath Bloomberg Nickel Subindex Total Return ETN (JJN | F-93) -22.62 percent

JJN performed about 1.3 percentage points worse than NINI during the first six months of the year. The front-month-focused JJN is the bigger of the two nickel products, but it too is relatively small, with assets of about $7 million.

 

4. iPath Pure Beta Coffee ETN (CAFE | D-98) -26.18 percent

The No. 1 commodity of 2014, coffee prices haven't fared nearly as well so far in 2015. On the bullish side, top-producer Brazil's coffee crop has struggled to recover from last year's record-breaking drought, prompting the International Coffee Organization to forecast a substantial global deficit of 8 million bags.

 

On the other hand, just as has been the case with sugar, Brazilian coffee farmers have benefited from weakness in the country's currency. That should push them to produce more going forward even with the decline in the commodity price.

 

CAFE is the optimized ETN that delivered slightly better returns than its counterpart in the first half of this year. But with about $5.5 million in assets, it's the smaller of the two products by far.

 

 

3. iPath Bloomberg Tin Subindex Total Return ETN (JJT | F-94) -26.67 percent

One of the least-followed markets, tin doesn't attract much attention from investors. But with the biggest first-half decline since at least 1990, according to Bloomberg, the industrial metal is catching the attention of short-sellers and bargain hunters alike.

 

The problem for tin has come on both the supply side and the demand side. Production from Myanmar has spiked higher recently thanks to an influx of investment into its industry, while consumption is precarious amid the troubles facing China, buyer of upward of 40 percent of the world's tin.

 

The only tin product available in exchange-traded form today is JJT, a relatively illiquid ETN with $2 million in assets.
 

2. iPath Bloomberg Coffee Subindex Total Return ETN (JO | C-92) -27.82 percent

The front-month rolling strategy of JO has appealed to investors despite this year's lousy returns. The ETP sports assets under management of $103 million, dwarfing the other coffee ETN, CAFE.

 

1. iPath Bloomberg Natural Gas Subindex Total Return ETN (GAZ | F-42) -36.82 percent

The worst-performing commodity ETP of the first half of the year is an ETN that also made an appearance on another one of our lists from last week. GAZ, the notoriously fickle natural gas ETN that has often traded at a premium to its net asset value during the past several years, finally closed the gap.

 

As we explained in the other article, GAZ's underperformance was largely tied to a closing of this premium against NAV, rather than any fluctuations in natural gas prices, which fell by only 1.1 percent during the first six months of 2015. For comparison, the largest natural gas ETF, the United States Natural Gas Fund (UNG | C-100), lost 8.2 percent.

 

In January, the issuer of GAZ—Barclays—issued a press release that warned investors of the "persistent and material premium in the trading price" of GAZ, then around 44 percent. Barclays went so far as to say that the ETN was "not suitable for most investors." The story of GAZ illustrates just how important it is for investors in exchange-traded products to understand NAV and the underlying holdings of the products they are buying.

 

Worst Performers (%) ex Leveraged and Inverse

Ticker Fund H1 2015 TRR
GAZ  iPath Bloomberg Natural Gas Subindex Total Return ETN -36.82
JO  iPath Bloomberg Coffee Subindex Total Return ETN -27.82
JJT  iPath Bloomberg Tin Subindex Total Return ETN -26.67
CAFE  iPath Pure Beta Coffee ETN -26.18
JJN  iPath Bloomberg Nickel Subindex Total Return ETN -22.62
NINI iPath Pure Beta Nickel ETN -21.32
SGAR  iPath Pure Beta Sugar ETN -20.49
CANE  Teucrium Sugar -20.12
SGG iPath Bloomberg Sugar Subindex Total Return ETN -17.42
PALL ETFS Physical Palladium -15.92

 

 

 

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