Some Low Volume Commodities ETFs Are Flourishing

Low volume exchange-traded products get a bum wrap and the further down the volume totem one goes, the worse the reputation becomes. This scenario exists despite the fact that there is ample empirical evidence suggesting many low volume funds deliver excellent returns.

Importantly, the phenomenon of high returns from low volume ETFs and ETNs is not limited to just one asset class. Five of the 10 best-performing equity-based ETFs year-to-date will not be winning any volume contests any time soon.

Add to that, it is not hard to find a number of thinly traded bond ETFs delivering attractive returns. Now it is time to put commodities ETFs and ETNs under the microscope to see if volume makes a difference. Not surprisingly, the answer is "Yes, there are some lightly traded commodities funds that have been surging this year."

Case and point: The United States Gasoline Fund (NYSE:UGA). The United States Gasoline Fund is by no means anonymous, but given the commodity UGA tracks and its impact on the daily lives of millions of Americans, one might expect UGA to be more heavily traded.

Despite average daily volume of just over 42,000 shares, UGA has jumped 25.4 percent in 2012. The performance over the past three months is even more astounding. UGA was trading around $46 in early July. It was found flirting with $61 at Monday's close.

UGA, which tracks NYMEX-traded unleaded gasoline futures, is not the only example. There is no doubt most investors have heard about surging corn prices this year and how the Teucrium Corn Fund (NYSE:CORN) has benefited. CORN is up more than 15 percent year-to-date, but the volume is fair on that fund and is nearly five times that of SOYB's.

The Teucrium Soybean Fund (NYSE:SOYB), another beneficiary of the drought that ravaged the U.S. Midwest this summer, has soared 18.2 percent year-to-date and even though it was known soybean prices were tracking corn higher in the summer, SOYB's average daily turnover is still below 50,000 shares.

Not for the faint of heart or those that choose to ignore headlines out of the Ivory Coast, the world's largest cocoa producer, the iPath DJ-UBS Cocoa TR Sub-Index ETN (NYSE:NIB) has also been a stellar performer this year. NIB is up almost 16 percent on volume that is less than 47,000 shares per day. NIB has enjoyed a nice run despite its volume hurdles, but the fund is starting to give back some of those gains and a move below $33 could worsen a sell-off that is already gaining pace.

Precious metals cannot be ignored, especially when silver is the year's best-performing commodity. However, most investors already know about the iShares Silver Trust (NYSE:SLV) and gold products such as the SPDR Gold Shares (NYSE:GLD).

Given the recent bullishness in silver and gold along with the positive impact additional monetary easing can have on platinum and palladium, it would be reasonable to assume an ETF that offers exposure to all four precious metals would be home to big volume. That is not the case for the ETFS Physical PM Basket Shares (NYSE:GLTR).

GLTR is nearly two-years-old, has jumped 16.4 percent in just the past three months and is trading 4.2 percent below its 52-week, but still has ADV of just over 10,000 shares. That is a head scratcher, but there are other metals funds beset by the light volume/high return quagmire.

All of the following feature double-digit year-to-date returns with slack average daily turnover: UBS E-TRACS Long Platinum TR ETN (NYSE:PTM), ETFS Physical White Metals Basket Shares (NYSE:WITE), iPath DJ-UBS Precious Metals TR Sub-Index ETN (NYSE:JJP) and the ELEMENTS Rogers International Commodity Metal ETN (NYSE:RJZ).

For more on thinly traded ETFs, click here.