Commodity ETFs are underperforming because they're not trading the spot price or even the most nearby futures price (the price typically reported by the news media); rather they are entering into a price that represents the market's estimation of the expected spot price of delivery sometime in the future.

For those uninitiated to the futures market, this question may seem a topic worthy of interesting discourse. But to veteran futures traders this question is as nonsensical as going to the race track to bet on the horses, only to find there are no horses actually racing, just horseless jockeys vying for the finish line.

To begin with, commodity futures are fundamentally different from securities which represent equity or fixed income type investments. Futures are risk management tools, a `zero-sum game' distinctive from the capital formation markets. Moreover, as noted by Greer (1997), the inherent problem is that commodities are not capital assets but instead consumable, transformable (and perishable) assets with unique attributes. Hence, regardless of the instrument used, commodity trading facilitated for financial rather than commercial reasons is traditionally considered to be a speculative activity, not an investment.

The Analyst Magazine, Commodity ETFs, Commodity Futures, Risk Management, Capital Asset Pricing Model, CAPM, Arbitrage Pricing Theory, Capital Formation Markets, Commodity Funds, Business Operations, Financial System, Financial Industry, Commodity Markets, Price Discovery Mechanism, Economic Models.