Top 5 Commodity ETFs Of 2011

As we enter the home stretch of 2011, many investors are taking the time to look back on a hectic year to re-evaluate their underlying holdings and put themselves in the best position for 2012. As far as commodities are concerned, it was a pretty rough year. Though the first few months went off without a major hitch, volatility spiked as 2011 progressed, causing commodities to exhibit wild daily movements. For the most part, turning a profit was a tall order for 2011, as a number of commodity investments endured miserable returns. In fact, it is estimated that anywhere from 90%-95% of investors lose money when investing in commodities, making this year no exception [see more at How To Lose Money Investing In Commodities].

Now that investors are prepping for a new year and hopeful for some market stability, we outline five of the best commodity ETPs of 2011. Note that this list does have some limitations; only one fund from any given commodity was chosen, otherwise the list would have been comprised of mostly gold-based products [see also Three Reasons Why Gold Is Overvalued].

GSC is one of the most unique funds in the space. It’s underlying index is a composite index of commodity sector returns representing an unleveraged, long-only investment in commodity futures that is broadly diversified across the spectrum of commodities. The fund has been around since 2007 but is issued by Goldman Sachs, leaving many to worry over the stability of fund should more trouble come Goldman’s way. Also note that the fund charges a fee of 125 basis points, effectively taking the year’s gains down to just 0.90%. All in all, the ETF is relatively mysterious, as it is difficult to find the underlying contracts and what the fund currently holds. Unless you have time to comb through the prospectus it is probably best to avoid this ETN [see also Dividend Special: Top Companies In Every Major Commodity Sector].

This ETN tracks an index which measures the collateralized returns from a basket of futures contracts representing the livestock sector. Underlying contracts include both lean hogs and lean cattle, giving UBC a nice global reach as both livestock types lie in regions all over the world. One of the most surprising, but reassuring features of this fund is its relatively low volatility. UBC features a 200 day volatility of just 23.6%, which is low by most commodity standards. Also note that as an ETN, UBC will not distribute a K-1 and will never incur tracking error. The downside comes from the credit risk of the underlying issuer, which happens to be UBS. Overall, 2011 was a relatively stable year for livestock as UBC was one of the few funds to post gains. As populations continue to rise and food demand subsequently increases, UBC may have further upside potential over the coming years [see also Three Things Wall Street Journal Didn’t Tell You About Commodities].

Another futures-based product, DBS seeks to replicate a rules-based index composed of futures contracts on silver and is intended to reflect the performance of silver. The fund, which launched in early 2007, charges just 50 basis points and is offered by PowerShares. Silver has had a rough year; while other precious metals have shined, silver has had a lot of trouble holdings its footing. The year started off with the metal surging, inviting a number of investors to buy in to the white-hot silver trend. But after two nasty drop-offs in April and August, silver has been held to mediocre gains compared to other precious metals investments. Some may see its low price as a good buying opportunity, but others will note the fund’s volatility and may want to stay away for 2012 [see also 25 Ways To Invest In Silver].

This objective of this ETF is for the daily changes in percentage terms of its units’ net asset value to reflect the daily changes in percentage terms of the spot price of Brent crude oil as measured by the changes in the price of the futures contract on Brent crude oil as traded on the ICE Futures Exchange. Brent crude, the most popular form in the world, is typically found in the North Atlantic and is the mainstay oil option across the pond. While WTI has been surging in recent weeks, grabbing all of the headlines, Brent has had a steady year of gains for its investors. This ETF caught fire in early 2011 as tensions in the Middle East led to production snags and price increases for crude. Though BNO is down from its highs in late April, the fund still has a respectable gain on the year and a high potential with new conflicts in Iran emerging [see also Crude Oil Guide: Brent Vs. WTI, What’s The Difference?].

Had this list literally taken to the top five performing commodity ETPs on the year, four out of the five would have been focused on gold. There has simply been no stopping this metal through out the year as investors have deemed the commodity to be one of the only safe haven investments left on the market. 2011 saw gold break through $1,900/oz. and many feel that it is only a matter of time before it smashes the 2K mark. Unfortunately, gold has been stuck in something of a correlation rut over the last few weeks, with its performance greatly hinging on equities. Predicting how long this trend will last is difficult, but the gains put forward by these ETPs are hard to ignore. Charging just 25 basis points, IAU, a physically-backed fund, was the best gold performer on the year [see also Gold And Silver In A Correlation Bubble?].

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Disclosure: No positions at time of writing.