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Managed Commodity futures ETF

Commodity ETFs and managed futures are two commodity investments for those who don’t want to manage the day to day trading activities. Both investments participate in similar markets, but they can be far from the same investments.

Managed Futures

Managed futures are actively traded accounts where a Commodity Trading Advisor(CTA) manages the trading in the futures markets. Each fund is unique in the sense that there are an infinite amount of trading styles and numerous market in which to trade. As you might guess, the returns vary greatly from one advisor to another.

When you invest in managed futures, you are not necessarily dependant on the commodity markets moving higher. CTAs can make money whether the markets are flat or moving up or down. However, the market environment can often play a large part in the performance of a CTA due to their trading methodology.

Commodity ETFs

A commodity ETF invests in a group of commodities or sometimes just a single commodity. Most commodity ETFs invest in futures contracts, but they do not use leverage. This prevents the fund from running into a negative balance situation.

More commodity ETFs have been created in recent years that allow commodity investors to find whatever type of fund they are looking for. Some funds invest in a single commodity, whereas others invest in a sector or a diversified group of commodities. Commodity ETFs are dependant on the commodity or commodities moving higher.

For a long term investment, there are benefits and drawbacks to both managed futures and commodity ETFs. It all comes down to individual preferences and investment needs. Here are some major factors to consider when trying to choose between the two.

1. A commodity ETF is much more liquid and trades similar to a stock. It is easy to buy and sell. Some investors even day trade commodity ETFs. Managed futures require paperwork, disclosures and usually require some type of penalty if funds are withdrawn in the first year.

2. A good case could be made that less research needs to go into investing in a commodity ETF. If you believe a particular commodity is going to move higher, you can simply buy a commodity ETF that participate in that analysis. You can spend a great deal of time researching past performance of the numerous managed futures programs. Then you can spend an even longer time reading through the prospectus of each fund to figure what trading methodology is used.

Wiley Extreme Weather and The Financial Markets: Opportunities in Commodities and Futures
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Popular Q&A

Can I gain a tax advantage by placing Commodity Futures and Currency ETFs in a Roth account?

I am interested in diversifying my portfolio and adding some alternative investments to potentially boost my returns. I know these are taxed as partnerships and I will be sent a K-1 at the end of the calendar year. I am aware of the 60% Short term, 40% long term taxation on these type of funds as well. I was wondering though if I could avoid all these complexities and place them in a Roth IRA account and not have to worry about the future tax ramifications.

You may want to be careful since losses cannot be declared in a Roth account. You should check this and your concept with a trusted, certified tax professional or accountant.

Should You Invest In Managed Futures Or Trade Commodities On Your Own

Managed futures are professionally managed investment accounts that invest in the commodities and futures markets. Managed futures are a good way to diversify your overall investment portfolio, but many investors wonder whether they should manage their own commodities trading account.

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