Self Directed Investor Inc
SDI: "Empowering investors with ideas and education"
Symbol Lookup »  
Topics:ChinaETFsEarningsEconomyEnergyForexGoldIncomeLessonsIdeasTrading

  • Other news: News from PR Newswire
| More

Ten Commodity ETFs Every Investor Should Know (But Most Don't)

Wed, Jan 27, 2:16 AM ET, by Michael Johnston

Commodities are the new black in the world of investing, thanks in no small part to the rise of ETFs as the tool of choice in more and more portfolios. Commodity ETFs saw cash inflows of more than $30 billion in 2009, as total assets more than doubled on the year. According to the ETF screener, there are currently 91 exchange-traded commodity products, including inverse and leveraged funds. At the end of 2009, there was $73.7 billion in these funds, but most of these assets were concentrated in a handful of tickers. GLD alone accounted for more than half of commodity assets, and the top seven commodity funds (SLV, DBC, UNG, IAU, DBA, and DJP) made up almost 85% of the total amount.

But there’s a lot more to the world of commodity ETFs than these “mega-funds.” Below are profiles of ten commodity ETFs that aren’t even on the radar screens of most investors, but which present compelling investment theses and offer potential for unique exposure.

10. ELEMENTS S&P CTI ETN (LSC)

WheatMost commodity products fall neatly into either a long or short bucket, but LSC is a horse of a different color. The index to which this ETN is linked applies a long/short strategy to six commodity sectors comprised of sixteen traditional, physical commodity futures contracts. The individual commodities are grouped into six sectors (energy, grains, industrial metals, precious metals, livestock, and softs) and each sector, except the energy sector and softs sector, is represented on either a ''long'' or ''short'' basis, depending on recent price trends of that sector.

The energy sector is represented on either a ''long'' or ''flat'' basis (protecting against the potential for a big loss from a short position if crude prices surge), and each commodity within the softs sector (cocoa, coffee, sugar, and cotton) is represented on either a ''long'' or short'' basis separately rather than in the aggregate as a single sector.

The position of each sector is determined by comparing the current sector price to a moving exponential average, meaning that LSC essentially applies a momentum investment strategy to commodities. So in addition to protection to inflation and a diversifying agent, investors can access a strategy long popular with hedge funds and commodity traders.

9. PowerShares DB Base Metals Double Long ETN (BDD)

CopperOver the last twelve months, only two commodity ETFs have gained at least 100%: the iPath Copper ETN (JJC) and this base metals fund from PowerShares DB. The index underlying this ETF is equally-weighted between aluminum, zinc, and copper, offering leveraged exposure to three resources widely used in manufacturing operations.

As its name suggests, BDD is indeed a leveraged product, but not in the sense that most investors imagine. Instead of the daily exposure offered by products from Direxion and ProShares, BDD resets on a monthly basis, meaning that volatile markets are less likely to erode returns.

8. United States 12 Month Natural Gas Fund (UNL)

Natural GasInvesting in natural gas was one of the major trends of 2009, as evidenced by the more than $5.5 billion that flowed into the United States Natural Gas Fund (UNG) during the year. But as many investors learned the hard way, funds that invest primarily in near-month futures contracts can deliver undesirable results when markets are consistently contangoed.

Similar to UNG, UNL is designed to track changes, in percentage terms, of the spot price of natural gas delivered at the Henry Hub, Louisiana. But there’s a key difference between these funds: UNL’s holdings consist of near month contracts and contracts for the following 11 months, meaning that only a fraction of assets are rolled each month. UNL may be less responsive to changes in spot prices of natural gas, but it will also generally have a far lower “roll yield” when the futures curve slopes upward.

Despite this potential advantage, UNL has been slow to catch on: the fund has less than $40 million in assets, compared to more than $4 billion for UNG.

7. UBS E-TRACS DJ-UBS Commodity Index Total Return (DJCI)

CornCommodity ETFs can bring valuable diversification benefits to traditional stock-and-bond portfolios, but one of the potential drawbacks of these products is the costs they incur (especially relative to the sub-ten basis point expense ratios offered by some ETFs). DJCI charges just 0.50%, making it the cheapest way to gain broad commodity exposure.

Of the ten exchange-traded products offering long exposure to a diversified basket of commodities (see the complete list here), DJCI features the lowest expense ratio by a wide margin. The iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP) tracks the exact same index as DJCI, but charges an extra 25 basis points. DJP has more than $2 billion in assets thanks in large part to its first mover advantage, but DJCI is far more efficient from a cost perspective.

6. ETFS Physical Swiss Gold Shares (SGOL)

GoldMost investors looking to gain exposure to gold prices through ETFs settle on the SPDR Gold Trust (GLD) unaware that a similar product from ETF Securities offers identical exposure at a lower cost. In addition to the almost negligible cost gap (0.39% vs. 0.40%), this fund sets itself apart from GLD by offering geographic diversification: SGOL stores its gold bars in secure vaults in Switzerland. A repeat of the gold confiscation of 1933 is unlikely, but for those investors overcome with paranoia (many gold bugs are), this peace of mind might be worth the lack of additional cost.

By size and trading volume, SGOL pales in comparison to the gold SPDR. But with assets of more than $300 million and average daily volume of more than 150,000 shares, SGOL offers plenty of liquidity for almost any investor.

5. GreenHaven Continuous Commodity Index (GCC)

SoybeansThis ETF uses futures contracts to track the Continuous Commodity Index-Total Return, an equal-weighted benchmark of 17 individual commodities plus a Treasury Bill yield. Because this benchmark is equal-weighted, GCC offers greater exposure to grains, livestock, and softs than most other diversified commodity products (and lower exposure to energy commodities).

Two additional interesting twists of GCC: 1) the fund is rebalanced daily to ensure that allocations for each commodity remain as close to 1/17th as possible, and 2) the commodities underlying the index are averaged across the futures curve six months out, minimizing the potential for a costly roll process each month (anyone invested in UNG knows how valuable this can be).

4. iPath Dow Jones-UBS Sugar Subindex Total Return ETN (SGG)

SugarOne of the primary benefits of adding commodities to a portfolio is the low correlation between this asset class and stocks and bonds. According to the iPath web site, the issuer’s diversified commodity ETN has a correlation with with S&P 500 of 0.25. The relationship between equity markets and resources used heavily in manufacturing operations: the correlations for copper (JJC) and energy (JJE) are 0.43 and 0.28, respectively. Sugar, however, exhibits a near perfect lack of correlation with both stocks and bonds: correlation between this ETN and the S&P 500 is just 0.03. Correlation between SGG and the Barclays U.S. Aggregate Bond Index is -0.01.

SGG is also an interesting option for more active traders because of its tremendous volatility: in 2009 this ETN gained or lost 100 basis points in 65% of trading sessions, and moved by at least 3% in one day out of every five.

3. IndexIQ ARB Global Resources ETF (GRES)

Crude OilThis fund isn’t technically a commodity product (it invests primarily in stocks), but offers a way for investors to gain indirect exposure to prices of natural resources without dealing with the complexities and potential drawbacks of a futures-based strategy. GRES tracks an index that uses momentum and valuation factors to identify companies that operate in commodity-specific market segments and whose equities trade in developed markets.

There are a number of funds that invest in equities of commodity-intensive companies (GDX and HAP are two of the more popular), but GRES is different from these funds in one key respect: this fund includes short exposure to global equities (through positions in S&P 500 and MSCI EAFE Index futures) as a partial equity market hedge.

2. ETFS Physical Palladium Shares (PALL)

HummerPALL is less than a month old, but the first U.S.-listed palladium ETF is already a major success, taking in more than $150 million in assets since its launch. Palladium is one of the world’s rarest metals, and offers a unique blend between a safe haven investment and a play on the industrial sector.

Palladium is a precious metal that is far more scarce than either gold or silver. It is also used by automakers – about half of the global demand for palladium comes from the automotive industry for use in catalytic converters. As such, PALL can be used to play multiple global trends. Demand for this metal is tied to the health of the auto industry (there’s not an ETF for that yet) and could be impacted by future climate change regulations and initiatives.

1. United States Commodity Index Fund (TBD)

CowThe last fund on our list doesn’t exist…yet. United States Commodity Funds has filed for approval with the SEC for the first active commodity ETF. The fund, which would be based on the actively-managed SummerHaven Dynamic Commodity Index, will choose 14 commodities each month from a universe of 27 possible resources.

The index is constructed based on research showing that a hypothetical portfolio composed only of commodities trading in backwardation would have outperformed broader baskets of commodities, as well as portfolios of those trading in contango, by a substantial margin. Momentum investing is a popular strategy for commodity investors, and it may soon make its way into an ETF (see a better writeup of this new fund here). See Seven Most Anticipated New ETFs of 2010 for a complete look at the product pipeline.

For updates on the launch of this fund (and news on all new ETF launches), sign up for our free ETF newsletter.

Disclosure: No positions at time of writing.


SDI Glossary: "Bond" Definition
SDI Glossary: "Commodities" Definition
SDI Glossary: "price" Definition
SDI Glossary: "ETFs" Definition
This Article's Word Cloud:   Commodity   DJCI   ETFs   Index   Return   SGOL   States   Total   United   assets   basis   between   billion   commodities   commodity   contracts   cost   each   either   energy   exposure   from   fund   funds   futures   gold   iPath   index   into   investors   long   markets   month   more   offers   potential   products   resources   sector   short   softs   strategy   than   that   there   these   this   trading   used   with

| More

Danaher Corp. Achieves #20 Analyst Rank, Surpassing Covidien plc
Wed, Apr 23, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

SQQQ: Large Inflows Detected at ETF
Wed, Apr 23, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: SQQQ Exchange traded funds (ETFs) trade just like stocks, but ...

PCEF, PCI, EXG, ACG: ETF Inflow Alert
Wed, Apr 23, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: PCEF, PCI, EXG, ACG Exchange traded funds (ETFs) trade just ...

UVXY: Large Inflows Detected at ETF
Wed, Apr 23, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: UVXY Exchange traded funds (ETFs) trade just like stocks, but ...

First Trust Value Line Dividend Index Fund Experiences Big Inflow
Wed, Apr 23, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: FVD, BAX, TE, ATO Exchange traded funds (ETFs) trade just ...

FCG, GDP, CRK, SGY: ETF Inflow Alert
Wed, Apr 23, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: FCG, GDP, CRK, SGY Exchange traded funds (ETFs) trade just ...

Daily Energy Bear 3x Shares Getting Very Oversold
Wed, Apr 23, 10:54 AM ET, by ETF Channel

In trading on Wednesday, shares of the Daily Energy Bear 3x Shares ETF (ERY) entered ...

PIE Makes Notable Cross Below Critical Moving Average
Wed, Apr 23, 10:54 AM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares DWA Emerging Markets Momentum Portfolio ETF (PIE) ...

VNQ, PSA, PLD, EQR: ETF Inflow Alert
Tue, Apr 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: VNQ, PSA, PLD, EQR Exchange traded funds (ETFs) trade just ...

First Trust US IPO Index Fund Experiences Big Outflow
Tue, Apr 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: FPX, GM, KMI, KRFT Exchange traded funds (ETFs) trade just ...

GSY, BSCE, BSJH, BSJG: Large Inflows Detected at ETF
Tue, Apr 22, 11:14 AM ET, by ETF Channel

Symbols mentioned in this story: GSY, BSCE, BSJH, BSJG Exchange traded funds (ETFs) trade just ...

Kraft Foods Group Inc a Top Socially Responsible Dividend Stock With 3.7% Yield (KRFT)
Tue, Apr 22, 8:14 AM ET, by ETF Channel

Kraft Foods Group Inc (KRFT) has been named a Top 25 Socially Responsible Dividend Stock ...

GLDX Crowded With Sellers
Mon, Apr 21, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the Gold Explorers ETF (GLDX) entered into oversold territory, ...

Twenty-First Century Fox Inc Takes Over #12 Spot From Delta Air Lines, Inc.
Mon, Apr 21, 12:24 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

XLB, DD, MON, DOW: Large Inflows Detected at ETF
Mon, Apr 21, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: XLB, DD, MON, DOW Exchange traded funds (ETFs) trade just ...

SPXL: ETF Inflow Alert
Mon, Apr 21, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: SPXL Exchange traded funds (ETFs) trade just like stocks, but ...

VTV, JPM, BRK.B, CVX: ETF Inflow Alert
Mon, Apr 21, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: VTV, JPM, BRK.B, CVX Exchange traded funds (ETFs) trade just ...

VGK, NSRGY, NVS, BP: ETF Outflow Alert
Mon, Apr 21, 11:34 AM ET, by ETF Channel

Symbols mentioned in this story: VGK, NSRGY, NVS, BP Exchange traded funds (ETFs) trade just ...

TXN a Top 25 Dividend Giant With $2.7B Held By ETFs
Mon, Apr 21, 8:14 AM ET, by ETF Channel

Texas Instruments Inc. (TXN) has been named as a Top 25 ''Dividend Giant'' by ETF ...

ED Named Top 25 Socially Responsible Dividend Stock
Mon, Apr 21, 8:14 AM ET, by ETF Channel

Consolidated Edison, Inc. (ED) has been named a Top 25 Socially Responsible Dividend Stock by ...

See How Caterpillar Inc. Ranks Among Analysts' Top Dow 30 Picks
Sun, Apr 20, 12:54 PM ET, by ETF Channel

A study of analyst recommendations at the major brokerages shows that Caterpillar Inc. (CAT) is ...

RUSS Crosses Below Key Moving Average Level
Thu, Apr 17, 4:14 PM ET, by ETF Channel

In trading on Thursday, shares of the Daily Russia Bear 3x Shares ETF (RUSS) crossed ...

Red Hat Inc Moves Up In Analyst Rankings, Passing Eastman Chemical Co.
Thu, Apr 17, 11:54 AM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

Biotech ETF Experiences Big Outflow
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: BBH, REGN, ALKS, ILMN Exchange traded funds (ETFs) trade just ...

XBI, MNKD, UTHR, ARNA: Large Inflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XBI, MNKD, UTHR, ARNA Exchange traded funds (ETFs) trade just ...

XME, ATI, ACI, SLCA: Large Outflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: XME, ATI, ACI, SLCA Exchange traded funds (ETFs) trade just ...

RWO, BXP, VNO, AVB: Large Inflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: RWO, BXP, VNO, AVB Exchange traded funds (ETFs) trade just ...

CSD, WWAV, PSX, STRZA: Large Outflows Detected at ETF
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: CSD, WWAV, PSX, STRZA Exchange traded funds (ETFs) trade just ...

PGX: ETF Inflow Alert
Thu, Apr 17, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: PGX Exchange traded funds (ETFs) trade just like stocks, but ...

PowerShares KBW Capital Markets Portfolio Breaks Above 200-Day Moving Average - Bullish for KBWC
Wed, Apr 16, 4:15 PM ET, by ETF Channel

In trading on Wednesday, shares of the PowerShares KBW Capital Markets Portfolio ETF (KBWC) crossed ...

Qualcomm, Inc. Moves Up In Analyst Rankings, Passing Monsanto Co.
Wed, Apr 16, 1:14 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

EEMV: Large Outflows Detected at ETF
Wed, Apr 16, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: EEMV Exchange traded funds (ETFs) trade just like stocks, but ...

ITOT, QCOM, MCD, ABBV: Large Outflows Detected at ETF
Wed, Apr 16, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: ITOT, QCOM, MCD, ABBV Exchange traded funds (ETFs) trade just ...

HEDJ: ETF Inflow Alert
Wed, Apr 16, 10:54 AM ET, by ETF Channel

Symbols mentioned in this story: HEDJ Exchange traded funds (ETFs) trade just like stocks, but ...

Chevron Corporation a Top Ranked SAFE Dividend Stock With 3.3% Yield (CVX)
Wed, Apr 16, 8:14 AM ET, by ETF Channel

Chevron Corporation (CVX) has been named to the Dividend Channel ''S.A.F.E. 25'' list, signifying a ...

XTL Crosses Below Key Moving Average Level
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Telecom ETF (XTL) crossed below their ...

PowerShares S&P SmallCap Consumer Discretionary Portfolio (PSCD) Shares Cross Below 200 DMA
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares S&P SmallCap Consumer Discretionary Portfolio ETF (PSCD) ...

PowerShares WilderHill Clean Energy Portfolio Breaks Below 200-Day Moving Average - Notable for PBW
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares WilderHill Clean Energy Portfolio ETF (PBW) crossed ...

IYZ Makes Notable Cross Below Critical Moving Average
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the iShares U.S. Telecommunications ETF (IYZ) crossed below their ...

ITE Makes Notable Cross Below Critical Moving Average
Tue, Apr 15, 4:14 PM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR Barclays Intermediate Term Treasury ETF (ITE) crossed ...

Time Warner Inc Achieves #87 Analyst Rank, Surpassing Tyson Foods, Inc.
Tue, Apr 15, 12:24 PM ET, by ETF Channel

In a study of analyst recommendations at the major brokerages, for the underlying components of ...

PJP, LLY, DEPO, BAX: ETF Outflow Alert
Tue, Apr 15, 11:24 AM ET, by ETF Channel

Symbols mentioned in this story: PJP, LLY, DEPO, BAX Exchange traded funds (ETFs) trade just ...

DBP Crosses Below Key Moving Average Level
Tue, Apr 15, 11:24 AM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares DB Precious Metals Fund ETF (DBP) crossed ...

PowerShares Senior Loan Portfolio (BKLN) Enters Oversold Territory
Tue, Apr 15, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the PowerShares Senior Loan Portfolio ETF (BKLN) entered into ...

Shares of XHB Now Oversold
Tue, Apr 15, 11:14 AM ET, by ETF Channel

In trading on Tuesday, shares of the SPDR S&P Homebuilders ETF (XHB) entered into oversold ...

Old Republic International Corp. a Top Ranked SAFE Dividend Stock With 4.6% Yield (ORI)
Tue, Apr 15, 9:24 AM ET, by ETF Channel

Old Republic International Corp. (ORI) has been named to the Dividend Channel ''S.A.F.E. ...

MUAE Crosses Below Key Moving Average Level
Mon, Apr 14, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the iShares 2016 AMT-Free Muni Term ETF (MUAE) crossed ...

First Trust NYSE Arca Biotechnology Index Fund (FBT) Shares Cross Below 200 DMA
Mon, Apr 14, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the First Trust NYSE Arca Biotechnology Index Fund ETF ...

VRD Crosses Above Key Moving Average Level
Mon, Apr 14, 4:14 PM ET, by ETF Channel

In trading on Monday, shares of the SPDR Nuveen S&P VRDO Municipal Bond ETF (VRD) ...

iShares U.S. Home Construction Getting Very Oversold
Mon, Apr 14, 3:54 PM ET, by ETF Channel

In trading on Monday, shares of the iShares U.S. Home Construction ETF (ITB) entered into ...

Related videos | all videos »
  More articles:  1 2 3 4 5 6 7 next »

ABOUT US »   ADVERTISE »   CONTACT US »   TERMS OF USE & PRIVACY POLICY »

Ten Commodity ETFs Every Investor Should Know (But Most Don't) | Self Directed Investor | Copyright © 2008 - 2014, All Rights Reserved

Any ideas and opinions presented in Self Directed Investor content are for informational and educational purposes only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners. In no way should any content contained herein be interpreted to represent trading or investment advice. None of the information contained herein constitutes a recommendation that any particular security, portfolio, transaction, or investment strategy is suitable for any specific person. All site visitors agree that under no circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.

SDI is associated with: ValueForum.com -- a subscription-based online social networking forum of over 1000 individual investors. | MarketNewsVideo.com -- videos appearing on SDI are produced by Market News Video. | TickerTech.com -- stock quote content appearing on SDI is at least 20 minutes delayed and is powered by Ticker Technologies. | GoldStockStrategist.com -- Edited by Scott V. Nystrom, PhD, Gold Stock Strategist provides analysis on gold mining companies.