5 Commodities ETFs That Could Disappoint In 2012

Rising oil prices. Debased currencies. Central banks eager to print more money. If the past couple of years have taught investors anything it is that having some commodities exposure within a portfolio isn't such a bad thing. The other side of that coin is that selectivity is a must when picking commodities ETFs and ETNs. Simply put, not all commodities are sure bets from the long side. In fact, some commodities ETFs and ETNs are epic disappointments for any number of reasons. Whether it's the continuous rolling of futures contracts or just downright slack price action in the underlying commodity itself, some commodities exchange-traded products look poised to be better short trades than anything else in 2012. Here are five to consider avoiding. iPath DJ-UBS Livestock TR Sub-Index ETN COW Holy cow, did you know that feeder cattle futures provided the best returns of all commodities when adjusted for volatility in the second half of last year? That factoid comes courtesy of Bloomberg, which notes feeder cattle even outperformed gold in the back half of 2011. COW tracks lean hogs and live cattle prices, so it's not a play on a feeder cattle. What COW is is a disappointment. The ETN underperformed the SPDR Gold Shares GLD in the past six months and if the global economy slows, live cattle prices will fall, pressuring COW along the way. iPath DJ-UBS Coffee TR Sub-Index ETN JO Brazil, the world's largest coffee producer, is expected to turnout robust coffee supplies this year and unless the weather there suddenly changes for the worse, it's clear the iPath DJ-UBS Coffee TR Sub-Index ETN could be caught on the wrong side of the supply/demand dynamic. The reality is global coffee demand is soaring and Starbucks SBUX has raised prices in select markets. Those factors would appear to work in JO's favor, but the ETN continues to tumble. It's a short below $52. Market Vectors Junior Gold Miners ETF GDXJ In this case, we should emphasize GDXJ has the POTENTIAL to disappoint this year. That would mean a sequel to what investors had to contend with in 2011 when ETFs like GLD rose, but funds like GDXJ lagged in a big way. That said, if you're a believer in the January Effect, GDXJ might be a pleasant surprise in 2012. Since December 29, the ETF has surged almost 16% after finding support at $22. iPath DJ-UBS Cocoa TR Sub-Index ETN NIB When an investor buys the iPath DJ-UBS Cocoa TR Sub-Index ETN, he or she is put in an interesting position. Beyond hoping for bad weather that could crimp cocoa supplies, cheering for political instability in major cocoa-producing nations is part of the deal as well. Well, that could easily happen since Ivory Coast and Ghana are the world's two largest cocoa producers, but it's not happening right now. In fact, cocoa shipments from those two countries are rising. Chocolate is sweet. NIB's performance is not. The ETN has been crushed in the past year. Teucrium WTI Crude Oil Fund CRUD Let's clear up the inclusion of CRUD on this list. We are not extolling a bearish view on oil. In fact, CRUD is a useful fund for traders looking for a contango-fighting oil play. However, the potential disappointment comes in the form of CRUD's expense ratio of 1.58%. That's high, though not all that terrible by the standards of oil futures ETFs and ETNs. Then again, it's fees like that make equities-based ETFs more economical plays on rising oil prices. Bottom line: CRUD's expense ratio will eat away at your returns.