How Commodity ETFs Can Dodge Regulations

Commodity ETFs are waiting for word of regulations put in place by the Commodity Futures Trading Commission (CFTC), but industry experts are already finding ways to get around any limits that are ultimately put into action.

A new Thompson Reuters/Jefferies In-The-Ground CRB Global Commodity Equity Index is expected to launch this week, and it says it will help investors bypass futures-based commodity exposure while still playing in the commodity universe.

Kevin Noblet for The Wall Street Journal explains that the index tracks the equity prices of commodity-producing companies, rather than the commodities themselves. Commodity-related equities don’t change in value as monthly contracts expire, so they can skip around the regulation imposed by the CFTC.

About 70% of the companies’ assets are “in the ground,” which is what the name of the index refers to. The companies deal with energy, precious and industrial metals, as well as agriculture products.

ETFs based on the index are in the works from ALPS Advisors and sub-advisor Arrow Investment Advisors.

Matt Kranz for USA Today says that commodity ETFs are fine for investing, so long as investors understand their risks. During inflation, prices rise rapidly, and investors, savers and bondholders all suffer.

Commodity-related investments and ETFs are perfect buffers for inflationary periods.

Just beware, however, as commodities prices already reflect current inflation expectations, so you could lose money if inflation is lower than people fear.

Watch the trend lines to protect yourself.

• iShares S&P GSCI Commodity Index Fund (GSG): up 5.3% year-to-date

• PowerShares DB Commodity Index (DBC): up 3% year-to-date

• Greenhaven Continuous Commodity Index (GCC): up 6.5% year-to-date

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