Commodity ETF Rebuilt

In addition to asset reallocation, DBC will also begin investing in Brent crude, an oilfutures contract traded in Europe. This loophole will allow the fund to reduce its U.S.-regulated oil holdings to 12.4% from 35% while adding Brent crude, gasoline and natural which will account for 12.4%, 12.4% and 5.5%, respectively.

As regulations hit futures traded on the New York Mercantile Exchange, fund issuers like PowerShares and United States Commodity Funds will simply reallocate assets to arenas that have different regulations. DBC's decision to cut down on Nymex-listed oil and buy Brent crude is a excellent example of this transition.

The threat of similar restrictions also has caused the mangers of UNG to cut back on natural gas futures contracts listed in the Nymex in favor of swaps that trade elsewhere.

Where there is a will, there is a way, and commodity ETF providers will continue to find ways to keep their funds running, even if it means riskier options for investors. Uncertainty is perhaps the greatest risk that futures-based commodity ETF investors face. Avoid these funds until the regulatory showdown has reached a resolution.

>To order reprints of this article, click here: Reprints