SLCG Issues Commodities ETF Report

WASHINGTON, Feb. 3, 2011 /PRNewswire/ -- Securities Litigation and Consulting Group, Inc. ("SLCG") has issued an investment management study into commodities exchange traded funds ("ETFs"), "Futures-based Commodities ETFs".  The report's primary authors are Ilan Guedj, Guohua Li and Craig McCann.  Dr. McCann and Dr. Guedj are Principals of SLCG and Dr. Li is a Senior Financial Economist.  Dr. McCann and Dr. Guedj are former university professors. Dr. McCann is a former Securities and Exchange Commission economist.  

The SLCG study explains that commodities ETFs have recently become popular because they offer retail investors a simple way to gain exposure to commodities, which are thought of as an asset class suitable for diversification in investment portfolios and as a hedge against economic downturns. However, the study concludes that returns of futures-based commodities ETFs have deviated significantly from the changes in the prices of their underlying commodities and that the pervasive underperformance of futures-based commodities ETFs compared to changes in commodity prices calls into question the usefulness of these ETFs for diversification or hedging.

This paper examines the sources of the deviation between futures-based commodities ETF returns and the changes in commodity prices using crude oil ETFs. It shows that the deviation in returns is serially correlated and that a significant portion of this deviation can be predicted by the term structure of the oil futures market. The authors conclude that only investors sophisticated enough to understand and actively monitor commodities futures market conditions should use these futures based commodities ETFs.  This study and other working papers are available at http://www.slcg.com/research.php.

Securities Litigation and Consulting Group, Inc. ("SLCG") is a financial economics consulting firm based in the Virginia suburbs outside of Washington, DC. SLCG provides consulting services and expert witnesses to law firms, publicly-traded corporations, banks, brokerage firms and individuals involved in complex litigation throughout the United States. SLCG's staff includes PhD, MA and BA level professionals with academic, industry and government experience. Its experts have testified in state and federal court and in various arbitration forums.

For further information about SLCG or its research, please contact Dr. Guedj at 703-865-4020 and [email protected], Dr. Li at [email protected] and 703-890-0740 or Dr. McCann at 703-246-9381 and [email protected] or visit us at http://www.slcg.com.

SOURCE Securities Litigation and Consulting Group, Inc.