| It does not have anything to do with contango. In a paper called "Facts and Fantasies about Commodity Futures" (Yale, 2004), Gorton and Rouwenhorst came to the following conclusion after studying 45 years of data on a wide array of commodities: - "commodities that have been more backwardated (by the second definition) have not earned larger historical returns" - "During our sample period, this commodity futures risk premium has been equal in size to the historical risk premium of stocks (the equity premium), and has exceeded the risk premium of bonds." George Rahal wrote a paper recently that also showed that contango/backwardation did not have any affect on commoditiy returns:
http://www.hardassetsinvestor.com/features-and-interviews/1/... "The other thing is, commodities are an artifact of futures, so they appear to have more volatility in the front month than in the back. Volatility is not the friend of a long-term index-type investor. So an index that avoids the front month is ideal." There are some commodity ETFs that are not suitable for long term investors though. UNG, which tracks US Natural Gas, generally have bad returns. This is mostly due to the frequent turnover, since it holds the front month futures. |