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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Tommaso who wrote (81351)5/1/2007 11:03:23 PM
From: Tony Starks  Read Replies (1) of 110194
 
One risk for commodity ETFs is negative roll yield (i.e., losing money when you roll over future contracts in markets that are in contango). DBA and its sister funds (DBO, DBP, etc.) use an "Optimum Yield" strategy to minimize negative roll yield and maximize positive roll yield.

Like DBC, the new ETFs track something Deutsche Bank calls its “Optimum Yield” indexes. All futures-based indexes must roll their contracts from one month to the next as each contract expires; typically, they simply sell the expiring contract and purchase the next, i.e., sell January and purchase February.
The “Optimum Yield” indexes, however, instead have the flexibility to “select” the best-priced contract looking out as far as 13 months. That is supposed to improve the “roll yield.” As explained below, PowerShares and DB are making some bold claims about the robustness of this process; it remains to be seen whether those claims will hold up over the long hall.
etf.seekingalpha.com
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