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Should You Buy the Commodities Momentum or Sell the Rally?

NEW YORK (TheStreet) -- Commodities have vastly underperformed the more traditional asset classes like stocks and bonds over the last three years. A combination of tepid global growth and below-average inflationary statistics has capped the upside of commodities futures markets.

Most investors are likely underweight exposure to this asset class, which can provide non-correlated returns in a diversified portfolio. As a result, you may have overlooked the recent surge in prices that has been steadily gaining momentum this year.

The iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP) is a broad-based basket of 22 liquid commodities futures contracts that is my preferred way to monitor this space. The top five holdings in this exchange-traded note include: gold, natural gas, crude oil, corn, and copper. This fund charges an annual expense ratio of 0.75% and has nearly $1 billion in total assets.

A quick look at the chart below shows just how far DJP has gained since the beginning of the year. In fact, the total year-to-date return through the end of the first quarter is +7.35%. This handily beat the Vanguard Total Stock Market (VTI) gain of 2.06% and iShares Core U.S. Total Bond Market ETF (AGG) return of 1.77%.

Many investors consider commodities an alternative asset class because they trade on futures exchanges and face different risks than stocks or bonds. Often times these markets are more sensitive to supply and production metrics that are indicators of global demand.

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