Base Metal ETFs for Commodity Sector Exposure
August 29th 2013 at 2:22pm by Tom Lydon
Industrial metals are showing strength as demand from China and the Eurozone pick up steam. Exchange traded funds that track this segment of the market have rebounded over the past month.
“The increased chances of the Fed curtailing stimulus have led to uncertainty in the market. Investors are thinking that the equity markets have reached the highest level and could slump, or stay range bound, from here. As such, they are moving to commodities, which look cheaper at current levels,” Zacks Equity Research wrote in a recent article.
Positive fundamentals supporting an uptick in industrial metals include a weaker U.S. dollar and increased growth in major economies such as the Eurozone and China. As developing and emerging economies begin to resume growth, tighter supply concerns are a major driver for the pricing of industrial metals. [ETF Chart of the Day: Base Metals]
The PowerShares DB Base Metals Fund (NYSEArca: DBB) is a good choice to grab exposure to the upward momentum expected in the sector for the rest of the year, reports Zacks. The ETF is up 6% over the past month, after posting a 10% loss for the year-to-date time period. The fund holds a basket of stocks that track the most popular base metals used worldwide, aluminum, copper and zinc. [Jim Rogers: Commodity ETFs to Benefit from Monetary Easing, Supply Issues]
Exchange traded notes are another way to gain broad-based risk adjusted exposure to the sector. The ETRACS CMCI Industrial Metals Total Return ETN (NYSEArca: UBM) and the iPath Dow Jones UBS Industrial Metals Total Return Sub-Index Total Return ETN (NYSEArca: JJM) are debt instruments that have both managed to gain over the past month, after taking year-to-date losses. UBM and JJM are both up about 7% over the past month. The recent performance is indicating the base metals sector is a momentum play for the coming months.
Although the commodity sector has shown weakness over 2013, recent trends and performances are indicative of positive momentum as economies begin to rebuild, and supplies remain tight.
PowerShares DB Base Metals Fund
Tisha Guerrero contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.