PowerShares is planning to leverage three of its commodity futures exchange traded funds (ETFs) to provide 200% of the daily return of the underlying indexes. If they are approved, these will become the first leveraged commodities ETFs, says Matt Hougan for Index Universe.
Those ETFs, which all launched in January, and their performance for the last three months include:
- PowerShares DB Gold Fund (DGL) – up 12.6%
- PowerShares DB Precious Metals Fund (DBP) – up 10.2%
- PowerShares DB Silver Fund (DBS) – up 8.8%
These ETFs currently track the performance of futures positions in the relevant commodity or commodities. This means that the ETFs capture changes in the spot price plus any "roll yield" and interest income. Under the proposed leveraged structure, the ETFs would instead try to double the underlying index movement. So if the indexes do well, these ETFs will do even better, but if the indexes perform poorly, these ETFs will suffer double their losses.
Precious metals investors looking in the ETF space seem to have favored "physical bullion" ETFs, such as the streetTRACKS Gold ETF (GLD), which has $11 billion in assets. So far, DGL, DBP and DBS each holds only around $20 million in assets.
PowerShares will not leverage its remaining commodity funds, such as the popular PowerShares DB Commodity Index Tracking Fund (DBC) or the PowerShares DB Agriculture Fund (DBA). Those funds have hit it off well with investors, which could be a reason why they aren’t being leveraged. Currently, DBC is up 14.7% year-to-date, and DBA is up 14.1% for the last three months, having launched in January.
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.