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Top 10 Agricultural Commodity ETFs

Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, and nearly 40 years in the investment business, we can help select those ETFs that matter and may or may not be repetitive. The result is a more manageable list of issues from which to view and make selections.

With inflation pressures waxing and waning, many believe it's important to have exposure to direct agricultural commodities. Why? Because commodity markets often feature non-correlated performance with conventional portfolios. Further when prices of foodstuff are rising, it makes sense to be able to profit or even hedge from these negative events. This naturally would include other commodity ETF/ETN products that have come to market directed toward metals, energies and currencies. We've cobbled some good choices together and where repetitive choices exist we've paired some together similarities are just too hard to ignore.

As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation of most portfolios to the commodity sector. These provide increased diversification opportunities for any portfolio. And, in nearly 40 years of seeing these positive effects during a variety of market conditions, I know first-hand their benefits. 

We're not ranking these ETFs favoring one over another so don't let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it's not our intention to recommend one over another.

Whereas our previous technical analysis methodology involved using evaluating monthly charts commodity markets must be viewed with shorter time horizons. This is due to obvious increased volatility but also due to the peculiar nature with which underlying commodity contracts trade. Some contracts expire monthly and others quarterly. Some have serious seasonal characteristics inherent with agricultural issues such as growing seasons, weather and disease. Therefore, it pays to be more active and utilize a combination of weekly and daily charts to manage risk.

Four other risk factors should be considered:

·         The CFTC's varying considerations regarding commodity position limits as applied to the assets of ETF and ETNs--still in limbo.

·         The credit quality of ETNs given these are "notes" many guaranteed by Barclay's and Deutsche Bank.

·         Backwardation (back month contracts lower than front month) and Contango (back months higher than front month) can negatively affect contract rollover for investors.  

·         Since most commodities trade in dollars, the value of the dollar can positively or negatively affect performance.

Deutsche Bank features inverse and leveraged long ETNs for those investors wishing to hedge or speculate.

DBA (PowerShares/DB Agricultural ETF) follows the DBIQ Diversified Agriculture Index Excess Return which is composed of futures contracts on the most widely traded agricultural commodities. The fund was launched in January 2007. The expense ratio is .75%. AUM (Assets under Management) equal $2.8 billion and average daily trading volume is 2M shares. As of mid-August 2011 there would only be a special dividend if any and YTD return is 1.60%.

Data as of August 2011

DBA Top Ten Holdings & Weightings

  1. Coffee 'c' Future Sep11: 13.19%
  2. Cocoa Future Sep11: 11.87%
  3. Sugar #11(World) Jul12: 11.76%
  4. Live Cattle Futr Aug11: 7.94%
  5. Soybean Future Nov11: 7.65%
  6. Corn Future Dec11: 7.62%
  7. Wheat Future(Kcb) Jul12: 5.34%
  8. Lean Hogs Future Aug11: 4.99%
  9. Corn Future Mar12: 4.89%
  10. Live Cattle Futr Oct11: 4.33%

 

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SYM TRADE IT LAST %CHG
BAL $42.92 0.00%
CORN $23.18 0.00%
DBA $22.23 0.00%
JJA $36.76 0.00%
JJG $33.53 0.00%

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