Commodity ETFs offer investors many benefits including: Portfolio Diversification, a non correlated asset, and the ability to profit in any market. One of the easiest ways to find commodities that are poised to increase is to look at the roll yield or futures curve for each individual commodity. If a commodity is in high demand then the nearest contract (the present month’s contract) will sell above all of the other backward dated contracts. If the commodity is not in demand than the present month’s contract will sell below or at a cheaper price than the farther out or distant contracts.
Obviously the perfect situation is when a commodity in in short supply and also has strong demand, strong enough that the commodity is in backwardation, meaning that there is so much immediate demand that the current or nearest month contract is selling at a premium to any of the contracts farther away in time.
Currenty there is only one commodities market that is in backwardation and that is Sugar#11. Presently the nearest month contract “October 2011” is selling at $28.41, the next most recent contract, which is “March of 2012” is selling at $27.78. As you can see there is a built in $.63 cents premium, in the nearest contract (the October 2011), signaling that demand for Sugar is currently very high, which could be the beginning of another run up in Sugar prices.
As a retail investor the best way to invest in sugar is through the Exchange Traded Note the IPath Dow Jones-UBS Sugar Subindex Total Return ETN (SGG) this ETN is the only instrument available for retail investors to directly own the actuall commodity sugar, not sugar companies. This ETN intendes to replicate the price of Sugar Futures, net of expenses. This Sugar ETN also has a very low expense ratio of 0.75% which is considerably less than most other commodity ETF/ETNs.
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