No, it's not a gold trust; the SPDR Gold Trust (NYSE Arca: GLD) came in third. It's actually the exchange-traded note tracking coffee's price, the iPath DJ-UBS Coffee Subindex Total Return ETN (NYSE Arca: JO).
Surprised?
Well, the second quarter was full of surprises for commodity investors. Unfortunately, most of them were unpleasant.
Of 17 single-commodity or narrowly focused products, only four turned a profit. The winners netted an average 12.1 percent gain, while the average loser gave up 9.9 percent.
We sought out the most liquid single-commodity ETPs to see how well they tracked the spot market over the last three months. When we couldn't find single-commodity ETPs to represent a sector of the futures market, we used the narrowest instruments; that is, two or three commodities wide.
Overall, ETPs—based upon their last sale prices—did a fair job of tracking spot market commodities. The average apparent return for the 17 ETPs was -4.7 percent, while the contemporaneous mean return for the underlying spot commodities was -2.7 percent.
But let's run the numbers asset by asset.
Precious Metals
Commodity | Spot Gain/ (Loss) | Futures Term Structure | ETP Ticker | ETP Type | ETP Gain/ Loss | +/- 200-Day Average |
| CMX Gold | 11.7% | Normal | TST | 11.7% | 8.1% | |
| CMX Silver | 6.2% | Normal | TST | 6.2% | 5.5% | |
| NYMX Platinum | -8.0% | Normal | ETN | -7.2% | -4.6% | |
| NYMX Palladium | -8.0% | Normal | TST | -7.5% | -6.8% |
Key: TST = Grantor Trust; ETN = Exchange-Traded Note
Gold and silver grantor trusts topped the precious metals group in the second quarter, partly because the trusts hold metal and aren't based upon a futures index. Of course, the underlying commodities increased over the period, but the product didn't get in the way of the gain's realization.In a normal futures market, carrying charges—financing costs, storage charges and insurance fees—build up along the futures term structure to make contracts for deferred delivery more expensive than futures for near-term delivery. This condition, often referred to as contango, is expected when there's ample supply of a storable commodity.
An inverted market, on the other hand, exists when deferred deliveries are priced below nearby ones. A dearth of storable supply is usually the culprit.
Normal markets are costly for holders of ETPs based upon long-only futures indexes. In order to maintain exposure to the commodity, futures positions must be rolled forward as contracts approach expiry. In a normal market, that means higher-priced contracts will be purchased with the proceeds from lower-priced futures sales. This incremental loss—or negative roll yield—eats into returns.
That said, the slight disparity in the palladium trust's return vs. spot is a liquidity artifact. The last sale prices reported on the tape don't necessarily reflect the current markets for ETPs. The less actively an ETP trades, the greater the discrepancy between the last sale price and the current bid/offer spread.
This should be kept in mind when considering the apparent returns of light-volume exchange-traded notes.
Base Metals
Commodity | Spot Gain/ (Loss) | Futures Term Structure | ETP Ticker | ETP Type | ETP Gain/ Loss | +/- 200-Day Average |
| CMX Copper | -18.0% | Normal | ETN | -19.1% | -11.4% | |
| LME Lead | -18.6% | Normal | ETN | -18.9% | -18.5% | |
| LME Nickel | -19.1% | Normal | ETN | -23.5% | -8.2% |
Key: ETN = Exchange-Traded Note
The market for industrial metals was weak in the second quarter, reflecting the slackened demand for durable goods and housing. The apparent spread between the ETP returns and the spot market is, again, due to timing and contango.Energy
Commodity | Spot Gain/ (Loss) | Futures Term Structure | ETP Ticker | ETP Type | ETP Gain/ Loss | +/- 200-Day Average |
| NYMX Crude Oil | -9.6% | Normal | ETF | -9.8% | -9.8% | |
| NYMX Gasoline | -10.3% | Inverted/Normal | ETF | -5.8% | -5.8% | |
| NYMX Heating Oil | -2.9% | Normal | ETF | -6.0% | -6.0% | |
| NYMX Natural Gas | 19.8% | Normal | ETF | 12.2% | -8.7% |
Key: ETF = Exchange-Traded Fund
Natural gas turned in the standout performance in the energy category, though deep contango in the futures term structure ate up a lot of the spot market gain. Carrying charges seemed to have also reduced the returns for the heating oil and crude oil exchange-trade funds. The large disparity between the gasoline ETF's return and its spot market is due to gasoline's unstable term structure over the second quarter.Softs
Commodity | Spot Gain/ (Loss) | Futures Term Structure | ETP Ticker | ETP Type | ETP Gain/ Loss | +/- 200-Day Average |
| ICE Coffee | 21.5% | Normal/Inverted | ETN | -18.5% | 17.1% | |
| ICE Cocoa | -0.4% | Normal | ETN | -1.2% | -4.9% | |
| ICE Cotton | -5.1% | Inverted/Normal | ETN | -3.0% | -0.2% | |
| ICE Sugar | -3.3% | Inverted/Normal | ETN | -7.0% | -23.4% |
Key: ETN = Exchange-Traded Note
Among the softs, coffee was the clear winner. Still, soft ETNs are lightly traded, so the differences between the products' apparent returns and their underlying markets can seem large.Grains
Commodity | Spot Gain/ (Loss) | Futures Term Structure | ETP Ticker | ETP Type | ETP Gain/ Loss | +/- 200-Day Average |
| CBOT Corn, Wheat, Soybeans | 0.7%* | Normal/Inverted | ETN | -0.7% | -6.1% |
Key: ETN = Exchange-Traded Note
*Spot returns are composites weighted by the constituent commodities' ETP allocations
Grains—in particular, corn and wheat—jumped on the last day of the quarter following U.S. Department of Agriculture reports of lighter-than-expected plantings.
LivestockCommodity | Spot Gain/ (Loss) | Futures Term Structure | ETP Ticker | ETP Type | ETP Gain/ Loss | +/- 200-Day Average |
| CME Live Cattle, Lean Hogs | -0.3%* | Normal/Inverted | ETN | -3.4% | -0.8% |
Key: ETN = Exchange-Traded Note
*Spot returns are composites weighted by the constituent commodities' ETP allocations
While grain prices broke to the upside, livestock prices spent most of the quarter backing off from the parabolic run-ups of the previous year.The Final Tally
In the first quarter, 75 percent of single-commodity and narrowly focused ETPs were winners. The platinum and palladium products were the top performers, along with the livestock ETN. But in the second quarter, the situation reversed: Losers outnumbered winners by better than 3-to-1. Coffee led the way in the second quarter, followed by natural gas.
The worst performers in the year's second stanza were the industrial metals—lead, copper and nickel. In the first quarter, sugar, natural gas and grains brought up the rear.
While there's been jockeying for best and worst honors, gold and silver take the prize for consistency in the first half.
Disclosure I am Long GLD n SLV shares
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