If the Wall Street marketeers keep pumping these things out I fear everything will flip to contango just for spite.
From Barron's Focus on Funds:
A New Way to Dance the Contango
It’s the headache of passive commodity investors: “contango.” A new fund from iShares is the latest to try to combat it.
Investors tend to suffer when the near-future commodity futures their fund needs to sell are priced below the expensive, longer-dated ones it needs to buy — a pricing discrepancy that’s the essence of “contango.” The result for fund shareholders is “negative roll yield,” which amounts to persistently buying futures high and selling them low.
iShares Dow Jones-UBS Roll Select Commodity Index Trust (CMDT), just launched on NYSE Arca, tries to reduce the effect in 22 commodity markets by moving into futures contracts with the least contango, or, ideally, the most “backwardation” — the latter being the condition when near-term oil or cotton is more expensive than futures expiring three or six or twelve months from now.
Interesting to note: More commodity markets, such as oil, have moved into backwardation of late. It’s the key reason United States Oil Fund (USO) has kept up with or exceeded spot oil prices this year, and one of the reasons United States Natural Gas Fund (UNG) did so well early in 2013....MORE
