Ironically, if it became wildly popular this index could be front-runned as well. (front-ran?)

That would be front-run.

Terrific work! This is the type of information that should be shared around the web. Shame on the search engines for not positioning this post higher!

Thanks for sharing. Interesting article.

I second Canadian Capitalist. Given their already high commodity exposure, Canadians don't have to be as concerned about adding commodities to their portfolios as U.S or European investors. Also, the correlation between stocks and commodities appears to have climbed in recent years as the popularity of seeking diversification in commodities increases. So not sure if even for US and European investors, the diversification benefits are all that great.

Thanks for the mention Preet. These days if you blink you'll miss three new ETF announcements.

I'm also staying away from commodities. The big reason is that a Canadian index already has massive exposure to the commodity sector through equities. I haven't seen a study on whether Canadian investors should add commodities. For that reason, I'm on the sidelines as far as commodities are concerned.

Commodities seems to be a hot topic in the blogosphere as of late. Just after posting my comment, I read this blog post from Larry Swedroe:
http://moneywatch.bnet.com/investing/blog/wise-investing/how-commodities-affect-a-portfolio/1608/

It tackles whether or not to include direct commodities exposure based on the returns of the overall portfolio. The problem becomes how to get exposure to a commodities index. If the commodities products out there remain faced with contango-drag for long periods of time, I assume they don't do a good job of tracking their target index.

Preet,

I too am skeptical of new products like these. I am also somewhat skeptical of commodities as an asset class, although it's something I've been looking into recently and I've been mulling over whether or not to include a component of direct commodities exposure into my portfoliio (I currently have no direct exposure at all).

I believe that a "good" asset class in a portfolio is one that has at least one (preferably both) of the following:
a) low correlation to other asset classes in the portfolio
b) has an expectation to increase in value over time

However, I'd argue that if you believe that commodities are a good asset class, is it not potentially beneficial to include a direct commodities play in your portfolio? If other commodities exposure is tied into, for example, a large cap index, then having a pure commodities asset could be beneficial as it would allow you to rebalance only the commodities position.

I guess my argument boils down to not simply deciding a priori how much exposure you want to different asset classes, but also providing some direct exposure to various asset classes so that as the asset classes move relative to each other, they can be rebalanced to provide a better overall return than the weighted sum of the individual components. I agree that as you do this, you want to make sure that your portfolio doesn't become dominated by a particular asset class or market sector such that a large movement in the asset class or market sector would seriously impact your portfolio.

Can a tribble be killed with a titanium spork ?
How do you stop a runaway ETF?
Does it really takes two to contango?

Who knew investing could present so many questions!