Top 10 Commodity Tracking ETFs

NEW YORK ( ETF Digest) -- Many believe it's important to have portfolio exposure to a basket of commodity ETFs. Why? Commodity markets often feature noncorrelated performance with conventional portfolios. But, this relationship has changed with easy money policies begun in 2008 which, away from most bond markets, has allowed most assets, including commodities, to trend in the same direction, becoming highly correlated. These policies have also have caused a decline in the dollar. Since most commodities are priced in dollars, this puts upward pressure on prices which can become inflationary.

As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator), I know the value of having a portfolio allocation 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. 

While we're ranking these in our own fashion, investors are encouraged to choose the issues that have the best allocations to suit their needs. That said, pay attention to sector allocations, AUM (assets under management) and liquidity. 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 over shorter time horizons. This is due to obvious increased volatility but also due to the peculiar nature with which underlying commodity contracts trade. Some futures contracts expire monthly and others quarterly. Some have serious seasonal characteristics inherent with agricultural issues such as with seasons, weather and disease. Therefore, it pays to be active and utilize a combination of weekly and daily charts to manage risk.

Four 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 remain a consideration if only as an understanding of structure.

·         Backwardation (back month contracts lower than front month) and Contango (back months higher than front month) can negatively affect contract rollover for investors and alter tracking considerations which upset some investors.  

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

ProShares and Deutsche Bank feature inverse and leveraged long ETFs/ETNs for those investors wishing to hedge or speculate.

#10: PowerShares/DB Commodity Long ETN (DPU)

DPU follows the Deutsche Bank Liquid Commodity Index which, sad to say, is an index shrouded in mystery since it's details are impossible to find. The fund was launched in April 2008. The expense ratio is .75%. AUM equals $6 million and average daily trading volume is less than 2K shares.

As of early March 2012 YTD return was 10.11%. The one year return was -5.80%. DBC would work just as well for investors here since it's linked to the same index.

#9: UBS DJ-UBS Commodity ETN (DJCI)

DJCI follows the Dow Jones-UBS Commodity Total Index which is a diversified basket of commodity products. The fund was launched in October 2009. The expense ratio is .50%. AUM equal $22 million and average daily trading volume is less than 5K shares.

As of early March 2012 YTD return was 3.29%. The one year return was -12.18%.

#8: Goldman Sachs Connect GSCI ETN (GSC)

GSC follows the S&P GSCI Enhanced Commodity Total Return Strategy Index which uniquely is a long only investment in a broad basket of commodity futures contracts. The fund was launched in July 2007.

The expense ratio is 1.25%. AUM equal $78 million and average daily trading volume is less than 15K shares. As of early March 2012 YTD return was 9.33%. The one year return was -1.35%.

#7: UBS Bloomberg Constant Maturity Commodity ETN (UCI)

UCI follows the UBS Bloomberg Constant Maturity Commodity Index Total Return Index which measures the collateralized returns from a basket of 26 commodity futures contracts with those diversified from three months to three years. The fund was launched in April 2008. The expense ratio is .65%. AUM equal $150 million and average daily trading volume is 41K shares. As of early March 2012 YTD return was 6.86%. The one year return was -6.38%.

#6: US Commodity Funds Commodity Index ETF (USCI)

USCI follows the SummerHaven Dynamic Commodity Index Total Return which is comprised of 14 futures contracts selected on a monthly basis from a list of 27 possible futures contracts as determined by quantitative formulas. The fund was launched August 2010.

The expense ratio is .95%. AUM equal $410 million and average daily trading volume is 147K shares. As of early March 2012 YTD return was 7.83%. The one year return was -9.01%.

                          

#5: GreenHaven Continuous Commodity Index ETF (GCC)

GCC follows the Continues Commodity Index-Total Return which is an equal-weighted index of 17 commodity futures contracts. The fund was launched in January 2008. The expense ratio is .85%.

AUM equal $655 million and average daily trading volume is 185K shares. As of early March 2012 YTD return was 4.01%. The one year return was -10.60%.

Data as of First Quarter 2012

GCC Top Ten Holdings & Weightings
  1. Platinum Fut Jul12: 2.42%
  2. Platinum Fut Apr12: 2.42%
  3. Sugar #11(World) Mar 12: 1.65%
  4. Wheat Future(Cbt)jul12: 1.64%
  5. Cotton No.2 Futr Jul12: 1.64%
  6. OJ-A Future Mar12: 1.63%
  7. Cocoa Future Jul12: 1.63%
  8. Coffee 'c' Future Jul12: 1.63%
  9. Corn Future Jul12: 1.63%
  10. OJ-A Future May12: 1.62%

#4: ELEMENTS Rogers Commodity ETN (RJI)

RJI follows the Rogers International Commodity Index-Total Return which includes a basket of 36 commodity futures contracts designed by James Rogers in July 1998. The fund was launched in October 2007. The expense ratio is .75%.

AUM equal $693 million with average daily trading volume 580K shares. As of early March 2012 YTD return was 7.17%. The one year return was -7.22%.

The index weights First Quarter 2012:

#3: iShares GSCI Commodity Index Tracking ETF (GSG)

GSG follows the S&P GSCI Return Index which is an index created by Goldman Sachs including broad-based commodity futures contracts. The fund was launched in July 2007. The expense ratio is .75%. AUM equal $1.4 billion and average daily trading volume is 4265K shares.

As of early March 2012 YTD return was 8.55%. The one year return was -2.85%.

#2: Barclays iPath Commodity Tracking ETN (DJP)

DJP follows the Dow Jones-UBS Commodity Index Total Return and is currently composed of a variety of commodity futures contracts traded on U.S. exchanges. You'll note a lesser weighting in energy in DJP versus DBC. The fund was launched in June 2006.

The expense ratio is .75%. AUM $2.4 billion and average daily trading volume is over 575K shares. As of early March 2012 YTD return was 2.86%. The one year return was -12.49%.

#1: PowerShares Commodity Index Tracking ETF (DBC)

DBC follows the DBIQ Optimum Yield Diversified Commodity Excess Return Index (a mouthful) which covers 14 of the most heavily traded and important physical commodities futures contracts in the world. The fund was launched in February 2006. The expense ratio is .75%.

AUM (Assets under Management) equal $6 billion and average daily trading volume is 2.5M shares. As of early March 2012 YTD return was 9.20%. The one year return was -1.18%.

Data as of First Quarter 2012

DBC Top Ten Holdings & Weightings
  1. WTI Crude Future Jul12: 12.46%
  2. Gasoline RBOB Fut Dec12: 12.12%
  3. Heating Oil Fut Jun12: 11.88%
  4. Brent Crude Fut Mar12: 11.84%
  5. Gold 100 Oz Fut Dec 12: 7.47%
  6. Sugar #11(World) Jul12: 5.00%
  7. LME Copper Future Mar12: 4.30%
  8. LME Zinc Future Jul12: 4.22%
  9. LME Pri Alum Futr Sep12: 4.20%
  10. Natural Gas Fut Oct12: 3.91%

We rank the top 10 ETF by our proprietary stars system as outlined below. If an ETF you're interested in is not included but you'd like to know a ranking send an inquiry to support@ETFDigest.com and we'll attempt to satisfy your interest.


Strong established linked index
Excellent consistent performance and index tracking
Low fee structure
Strong portfolio suitability
Excellent liquidity


Established linked index even if "enhanced"
Good performance or more volatile if "enhanced" index
Average to higher fee structure
Good portfolio suitability or more active management if "enhanced" index
Decent liquidity


Enhanced or seasoned index
Less consistent performance and more volatile
Fees higher than average
Portfolio suitability would need more active trading
Average to below average liquidity


Index is new
Issue is new and needs seasoning
Fees are high
Portfolio suitability also needs seasoning
Liquidity below average

There's a rapidly expanding series of direct commodity ETFs and ETNs especially as inflation pressures wax and wane. We've chosen to feature some that may be repetitive but clearly have something to offer as well.

One thing that seems clear when viewing many of these ETFs are similar trend patterns many share. The significant differences from one to the next are weightings among components and liquidity. Globalization and easy monetary conditions throughout the developed world allows for higher prices for many commodities despite misleading official inflation data.  

For further information about portfolio structures using this or other ETFs, see www.etfdigest.com .

The ETF Digest maintains a position in DJP.

You may address any feedback to: feedback@etfdigest.com   

 

(Source for holding data is from various ETF sources and sponsors.)