If the ten-year returns of the 3-month forward indices have outperformed the near-term indices in each case, often by a huge margin, this suggests that the use of the longer-dated contracts has maximised exposure to backwardation (which gives a boost to returns) or reduced exposure to contango.  

I asked Nik Bienkowski of ETF Securities to comment on these divergences, and the extent to which investors have made use of the forward commodity ETCs. He pointed out that, while his firm originally introduced the forward ETCs to meet client demand, there is no guarantee that the outperformance of "classic" ETCs by forward ETCs will continue. Bienkowski added as an example that ETF Securities offers ETCs giving access to four different maturities on the oil futures curve, and each one has outperformed at different times.

As far as client use of forward ETCs is concerned, ETF Securities currently has around US$ 90 million invested in them, well short of the peak of $376 million reached last May.  Nevertheless, the firm's clients have at times made active use of forward ETCs, most notably ETFS Forward Agriculture (FAGR) and ETFS Forward Natural Gas (NGAF).

At the very least investors need to be aware of the huge differences that variations in roll policy can have on returns, and they must know how to make an informed choice when deciding which part of the commodities futures curve they wish to be exposed to.

Returns Of Diversified Commodity ETFs

Major commodity indices allocate very different weightings to the different commodity categories (see the table below, taken from BGI's December 2008 "ETF Landscape").

It is unsurprising, therefore, that the performance of the broad commodity ETFs offered by leading European ETF providers showed some significant divergences. For easier comparison with the tables shown above, I have calculated returns in USD terms, although the main listings of these ETFs are in Euros.

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