Commodity Trader Biography
In addition, if an ETF that buys futures contracts is very large (assets in the tens of billions of dollars), it might be possible for other investors to trade ahead of the fund when it's time to roll its contracts each month. Such investors might know that the fund is not equipped to take delivery of the commodity, and is scheduled to sell billions of dollars worth of expiring contracts and buy billions of dollars worth of contracts for a month in the future. Knowing that a large fund is about to buy a particular futures contract (pushing up its price), these investors could buy the contract ahead of time at the lower price and sell to the ETF at the higher price—in which case investors who own the ETF will see slightly worse performance than they would otherwise.
What can you do as an ETF investor?
Be aware of the difference between a commodity ETF that relies on futures contracts and one that buys and sells at spot prices (look at the fund's prospectus to see what kind it is). The futures fund will do worse when there's contango but better when there's backwardation.
Consider owning a fund that has the flexibility to buy futures contracts of various lengths (one month, three months, six months, 12 months) instead of just the next month, since contango can differ with the length of the contract.
Be aware of the potential for other investors to trade ahead of very, very large funds and consider funds that are not quite so large in size.
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