Top 10 Base Metals Commodity ETFs

At the core of economic and industrial growth is always demand or lack thereof for base metals. After all they are at the well-springs of overall growth. Copper for example has been nicknamed Mr. or Dr. Copper given a PhD in economic forecasting abilities regarding future economic conditions. For copper and other base metals, the higher the demand the rosier will be the future.

As with others, since commodities are still priced in dollars the level of it can determine prices as well. A lower dealer will generally mean higher prices and vice versa. Given easy monetary policies globally beginning in 2008 and expanding globally since, the value of the dollar has declined.

With inflation pressures waxing and waning many believe it's important to have portfolio exposure to a basket of commodity ETFs. Some investors may wish to target individual commodity sectors like base metals. For most retail investors just focusing on the top three ETPs in our listing should be sufficient. The others on the list target mostly individual markets or have limited AUM (Assets under Management) and associated illiquidity for most to deal with effectively. The latter may be best suited to institutional investors who also have the ability to create new shares and deal directly with the exchange. 

As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation to base metals. Uniquely, most ETF/ETNs offer unleveraged exposure to these products as opposed to having to trade directly with futures contracts or options contracts employing more leverage.

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 these issues such as the seasonal nature of industrial expansion/contraction, global monetary policies and interest rates. Therefore, it pays to be active and utilize a combination of weekly and daily charts to manage risk.

·        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 price behavior.

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

We feature a technical view of conditions from monthly chart views. We recommend longer-term investors stay on the right side of the 22 weekly simple MA (moving average) along with MACD histogram direction which is unique from other approaches.  When prices are above the MA and the MACD histogram is trending in sync, look to be long, and when below remain in cash or short. Some more interested in a fundamental approach may not care so much about technical issues preferring instead to buy when prices are perceived as low and sell for other reasons when high; but, this is not our approach.

Premium members to the ETF Digest receive added signals when markets become extended such as DeMark triggers to exit overbought/oversold conditions.

#10: iPath Tin ETN (JJT)

JJT follows the Dow Jones-UBS Tin Subindex Total Return Index which includes and tracks a single-commodity futures contract trading on the London Metals Exchange. The fund was launched in June 2008. The expense ratio is .75%. AUM equal $46 million and average daily trading volume is 30K shares.

As of early March 2012 the YTD return was 22.51%. The one year return was -23.42%.

Holdings include the rolling over of Tin futures contract at the London Metals Exchange (LME).

#9: PowerShares Base Metals Long ETN (BDG)  

BDG follows the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals Index which is composed of aluminum, zinc and copper. We admit that it's difficult to ascertain the difference between BDG and DBB. The fund was launched in June 2008. The expense ratio is .75%.

AUM equal only $1.5 million and average daily trading volume is less than 1K shares. (This may mean others are struggling to figure this out themselves.) As of early March 2012 the YTD return was 12.05%. The one year return was -16.83%.

#8: UBS Industrial Metals ETN (UBM)  

UBS follows the UBS Bloomberg CMCI Industrial Metals Index Total Return Index which measures the collateralized returns from a basket of 5 futures contracts. These contracts are diversified across five constant maturities from three month up to three years. The fund was launched in April 2008. The expense ratio is .65%.

AUM equal $6 million and average daily trading volume is less than 7K shares. As of early March 2012 the YTD return was 10.48%. The one year return was -12.28%.

#7: iPath Aluminum ETN (JJU)

JJU follows the Dow Jones-UBS Aluminum Subindex Total Return Index which consists of a single-commodity futures contract in trading on the London Metals Exchange. The fund was launched in June 2008. The expense ratio is .75%. AUM equal $6 million and average volume is less than 10K shares.

As of early March 2012 the YTD return was 8.30%. The one year return was -18.26%.

Holdings include the rolling over of a Aluminum futures contract at the London Metals Exchange (LME).

#6: Barclays iPath Pure Beta Lead ETN (LEDD)  

LEDD follows the Barclay Capital Pure Beta TR Index which is comprised of a single exchange traded futures contract of lead, except during the contract rollover period the index may be comprised of two separate futures contracts. The issuer has the option to rollover contracts at various times away from any pre-determined schedule to enhance returns based on a proprietary methodology.

The fund was launched in April 2011. The expense ratio is .75%. AUM equal less than $3 million and average daily trading volume is less than 7K shares. As a new fund investors are giving it some time to season and evaluate performance. As of early March 2012 the YTD return was 3.55%. The one year return was unavailable.

Holdings include the rolling over of a lead futures contract at the London Metals Exchange (LME).

 

#5: iPath Dow Jones-UBS Lead ETN (LD)  

LD follows the Dow Jones-UBS Lead Subindex Total Return Index which is a single-commodity sub-index currently consisting of one futures contract trading on the London Metals Exchange. The fund was launched in June 2008. The expense ratio is .75%. AUM equal $2 million and average daily trading volume is less than 2K shares.

As of early March 2012 the YTD return was 6.46%. The one year return was -14.39%.

Holdings include the rolling over of a nickel futures contract at the London Metals Exchange (LME).

#4: iPath Nickel ETN (JJN)

JJN follows the Dow Jones-UBS Nickel Subindex Total Return Index that relates to the single commodity, nickel that trades on the London Metals Exchange. The fund was launched in October 2007. The expense ratio is .75%. AUM equal $11 million and average daily trading volume is less than 5K shares. As of early March 2012 the YTD return was 3.45%. The one year return was -27.52%.

Holdings include only the nickel commodity contract which trades on the London Metals Exchange (LME).

#3: ELEMENTS Rogers International Commodity Metal ETN (RJZ)

RJZ follows the Rogers International Commodity Index-Metals Total Return Index which represents the value of 10 commodity metals futures contracts and is a sub-index of the Rogers International Commodity Index. The fund was launched in October 2007.  The expense ratio is .75%.

AUM equal $56 million and average daily trading volume is 48K shares. As of early March 2012 the YTD return was 11.15%. The one year return was -13.08%.

#2: iPath Copper ETN (JJC)

JJC follows the Dow Jones-UBS Copper Subindex Total Return Index which includes the single high grade copper futures contract traded on the COMEX. The fund was launched in October 2007. The expense ratio is .75%. AUM equal $237 million and average daily trading volume is 215K shares. As of early March 2012 the YTD return was 12.06%. The one year return was -11.27%.

Holdings include rolling over the single high grade copper futures contract on the COMEX.

#1: PowerShares/DB Base Metals ETF (DBB)

DBB follows the DBIQ Optimum Yield Industrial Metals Excess Return Index tracks futures contracts on aluminum, zinc and copper. The fund was launched in January 2007. The expense ratio is .75%. AUM (Assets under Management) equal $362 million and average daily trading volume is 183K shares.

As of early March 2012 the YTD return was 11.15%. The one year return was -13.08%.

Data as of First Quarter 2012

DBB Top Ten Holdings & Weightings
  1. LME Copper Future March 12: 29.89%
  2. LME Zinc Future July 12: 29.31%
  3. LME Primary Aluminum Futures Sep12: 29.19%

We rank the top 10 ETF by our proprietary stars system as outlined below.

But in the case of Base Metals there are really only the top three for most investors to focus on. The rest would appear to be a little too targeted and atypical for investors. Further, the succeeding 7 issues have seen large declines in Assets under Management and the danger always exists they fail as a business enterprise for the sponsor.

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

It's also important to remember that ETF sponsors have their own competitive business interests when issuing products which may not necessarily align with your investment needs. New ETFs from highly regarded and substantial new providers are also being issued.

For further information about portfolio structures using technical indicators like DeMark and other indicators, take a free 14-day trial at ETF Digest . Follow us on Twitter and Facebook as well and join our group conversations.

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

The ETF Digest has no current positions in the featured ETFs.

(Source for data is from ETF sponsors and various ETF data providers)

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