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Top Performing Commodities ETFs of 2012

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Top Performing Commodities ETFs of 2012

There may be no better way to appreciate the diversity of exchange traded fundsthan by looking at the commodities sector.

There are several hundred ETFs,and their close cousin, ETNs, or exchange traded notes — covering everything from energy to metals to crops to livestock.

“Over the last three years there’s been an upward tear in commodities,” says Morningstar analyst Abraham Bailin, which partly explains the proliferation of ETFs covering the asset class.

Picking winners and losers in this group is more difficult than with stocks.

Morningstar’s ratings system, for instance, doesn’t apply here, because ETFs cannot be measured by future or forward performance projections.

What's more, commodities are speculative in nature, and thus volatile; trading volume and price are vulnerable to momentum. Thus, ETFs usually mirror the peroramnce of futures markets contracts.

“Most of these products track their benchmarks with razor-sharp precision,” says Bailin.

Such a dynamic is what makes commodities so attractive and yet risky.

Investors looking for big moves are likely to find them in single-commodity funds (copper, tin, corn, cocoa), and to a lesser extent, smaller subsectors (industrial, base or precious metals ) and not the big, diversified ones.

That’s not to say, however, that they should take the bait.

“If you’re looking to speculate in the space, for the retail investor looking to build a well-diversified portfolio we would absolutely not recommend taking single-commodity positions,” Bailin says.

Caution and common sense aside, we decided to take a look at the best-performing funds in the first 11 weeks of the year, when virtually all of of them outperformed the hot stock market.

Our list is based on Morningstar data. Though we include asset size and trading volume, they are not criteria in determining rankings, and vary widely.

One thing the funds have in common is impressive double-digit gains. In some cases, we awarded “honorable-mention” status to runner-up funds because their gains were very close to the winner’s.

(All core data from Morningstar; rankings are CNBC’s based on March 20 closing prices; descriptions are from the funds’ websites.)

Posted 21 March 2012

Photo: Getty Images