There has been some price momentum as well as a substantial uptick in trading volume in ETFs that target exposure to the broad commodity markets.
Notably, DBC (PowerShares DB Commodity, Expense Ratio 0.93%) the largest ETF in this category, traded more than 10 million shares yesterday (versus ADV of 1.8 million) and related ETF GSG (iShares S&P GSCI Commodity, Expense Ratio 0.75%) saw more than 4 million shares trade on Tuesday as both funds have seen steady asset inflows.
DBC and GSG have reeled in more than $300 million collectively and represent a play on a rise across commodities including Brent Oil, Gasoline, WTI Crude Oil, Heating Oil, Gold, Sugar, Corn, Copper, Soybeans, Zinc, and others.
Both funds have seen a notable uptick in interest that began midway through August, and has gained momentum with the Syria situation unfolding.
GSG is the third largest fund in this broad based Commodity category, with $1.2 billion in AUM, behind DBC’s $5.7 billion and DJP’s (iPath DJ-UBS Commodity, Expense Ratio 0.75%) $1.7 billion.
Several other notables, each with a different approach than the next are worth mentioning here too especially given the renewed interest in such funds which seemed to coincide with the situation in Syria taking over the news headlines, and these funds include RJI (ELEMENTS Rogers International Commodity ETN, Expense Ratio 0.75%), USCI (U.S. Commodity Index, Expense Ratio 0.95%), and GCC (GreenHaven Continuous Commodity Index, Expense Ratio 0.85%).
Broad based commodity funds have gained popularity in recent years (DBC, GSG, and DJP all debuted in 2006 to put this in perspective) among portfolio managers whom want futures exposure to slices of the commodity market, but are likely not willing to put all of their eggs in one basket and bet on one or two single commodities (across the subsectors of Energy, Agricultural and Metals).
The most important exercise one can perform in this space in terms of due diligence is dissecting the underlying composition of each of these funds in terms of exposure, and aligning this information with internal market outlooks as well as preferences toward different commodity exposures in order to determine “best fit.” For example, DBC is unquestionably an “energy heavy” play, with more than 53% of the overall portfolio exposure being made up of Energy commodities (Brent Oil, Gasoline, WTI Crude, Heating Oil), and in the recent environment of tension in the Mideast, the fund has been the beneficiary of rising energy prices.
USCI and GCC on the other hand are on the opposite end of the spectrum as they offer broad exposure across a swath of commodities (including the likes of the aforementioned Energy products as well as Soybeans, Corn, Platinum, Tin, Natural Gas, Zinc, Lead, Lean Hogs, Cattle, Cotton, Sugar, and Gold to name a few) and attempt to “equally weight” the holdings over time with regular re-balances.
Thus, selecting the appropriate fit in this category depends much on one’s market views on the path of prices in the broad commodity markets as well as which segments may be the driver of such performance in the short and longer terms.
PowerShares DB Commodity
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- Expense Ratio