When the coffee futures market is in contango (as at present), our ETF will continually have to sell contracts at a lower price and rebuy at a higher one. That means even if the price of coffee does not change, the price of the ETF will fall.
If the curve is in backwardation, on the other hand, the ETF will naturally gain. Therefore be warned.
Article continues after advert
The returns of many commodity ETFs can differ significantly from what the contango-ignorant investor might expect.
Jim Wood-Smith is head of research at Hawksmoor Investment Management
Page 2 of 2
