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Caution yield killer !: Caution with commodity investments: This should be considered by private investors | message


• Private investors have several options for a commodity investment

• Rolling losses and high storage costs can have a significant impact on returns

• Commodity investments are not for beginners


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Due to low interest rates, volatile stock markets and a possible rise in inflation, investments in commodities are becoming increasingly popular with private investors. There are almost no limits to the imagination, because with the help of modern financial products, investors can now invest in almost any raw material.

A variety of options for private investors

In principle, private investors can purchase any classic raw material without a derivative financial product, but it most likely makes no sense to store several barrels of crude oil or dozens of bags of soy in their own garden. Accordingly, the stock exchange offers a multitude of different options to indirectly participate in the performance of a wide variety of raw materials.

In this way, investors who want to diversify their portfolio with raw materials can, in addition to the shares of ordinary commodity groups, such as Mining companies, farms and oil explorers, as well as funds, ETFs and ETCs, as well as certificates, which replicate the price development of a single commodity or an entire basket of commodities.

Beware of high storage costs …

While classic commodity stocks do not produce any further ongoing costs in the portfolio and, if fortunately, even distribute a high dividend, commodity funds, ETFs and certificates usually incur high fees, which can extremely reduce the returns from rising commodity prices in the long term.

Many investors are often not aware that the providers of commodity ETFs, funds and ETCs, which hold the individual commodities in physical form in order to deposit the issued security with an actual quantity of a certain commodity, bear high storage costs to have.

For this reason, investors should give sufficient thought to the nature of the individual raw material before investing. Because while a million euros in gold fits in almost every conventional backpack, for a million euros in crude oil at the current oil price you need well over 25,000 barrels with a capacity of one barrel or 159 liters each. Thus, the price per unit volume of a raw material has a significant impact on the respective storage costs, which represent a cost factor that should not be underestimated.

… or roll losses

However, not all commodity funds, ETFs and ETCs offer a physical right to the respective underlying. In the case of so-called synthetic ETFs, only the price developments are represented by futures contracts. Contracts of this type, which can be traded on the futures exchange by institutional investors, represent the market prices for goods that are bought today but will only be delivered in the future. In contrast to a direct investment in the physical raw material, these future contracts expire after a certain time, so that they have to be renewed constantly. For example, the provider of a synthetic commodity ETF must constantly exchange the respective contracts that reflect the price development of the underlying. This often leads to so-called roll losses, which depend on the expected future price development and the current storage costs for the respective raw material.

Provided that investors only track the current price quotes for the individual raw materials and do not have an accurate picture of how high the roll losses within the individual financial products are, the real returns on a commodity investment can deviate extremely greatly from the personal expected performance. Investors who want to participate in the price development of various commodities in the long term with the help of synthetic ETFs should also keep an eye on the prices of the underlying futures contracts.

Contango vs. Backwardation

Whether a roll loss or even a roll profit arises for a commodity investor depends on the course of the so-called futures curve. As a rule, however, the situation on the commodity futures exchange is such that the futures prices are quoted above the spot prices or the spot rate, which means that a later delivery date entails higher costs. This situation, which is also known as contango, leads to roll losses for private investors.

Although the contango situation describes the normal case, the price situation on the commodity futures exchanges can also be such that the forward rate is listed below the current spot rate. In such a situation, which is referred to as backwardation, the investor would achieve a roll profit, however, since the futures curve slopes downwards and the respective commodity can be purchased at a lower price in the future.

Depending on the raw material, the corresponding roll losses or roll profits can differ greatly. As a result, it is generally the case that precious metals, such as gold and silver, often show a smaller difference between the individual futures contracts than commodities that are heavily dependent on the economic situation or the weather. Accordingly, the performance difference between a synthetic gold ETF and the gold price is never as extreme in the long term as the difference between a synthetic oil ETF and the crude oil price.

Better safe than sorry

As always, when it comes to investing and investing, as a private investor, of course, one should also deal with the subject sufficiently and provide sufficient information when it comes to commodity investments. Because especially when it comes to investments in the area of ​​raw materials, there are many stumbling blocks for inexperienced investors who can quickly transform a supposedly good investment into a profit killer.

Pierre Bonnet /

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