We’ve made no secret that we think Commodity ETFs are a poor choice for investors (see Commodity ETFs Suck – 2012 Edition), but we may have to revisit our premise with commodity ETFs  continuing to remain ahead of the Dec futures performance through the end of May.

The CORN ETF outperformance is mostly due to backwardation in the corn futures markets where the spot month price is higher than the further out price.  This allows the ETF to take in roll yield (sell existing contract high / buy new contract low) when it comes time to roll into the next contract month. Backwardation is currently not as prevalent in natural gas or crude oil as prices are relatively the same across the next three contract months.

Do we think the commodity ETFs will continue to outperform a simple strategy of buying the December contract and rolling it annually?  No.  Maybe they outperform for a month, a quarter, or even a year at some point. But they will still be rolling their positions many times more than a single annual roll, creating a drag in the form of cost and the roll yield.

How wrong are these commodity ETFs for investors, stay tuned for a more in depth look at them in our newsletter next week.