Commodities-focused exchange traded notes (ETNs), not the exchange traded funds (ETFs), do not own the underlying commodities. These are structured like debt instruments set to mature and are created to have price movements that correspond to indexes they mirror. They do not pay interest and do carry an expense ratio. While Barclays was the first to offer ETNs, recently a new line was established called Elements. These ETNs slice and dice commodities into accessible investment tools, reports Roger Nusbaum for TheStreet.com.
Nusbaum reviews the Elements and finds the total return index is the broadest commodities based exchange traded product. It allocates 44% to energy, spread across 6 different products. Another 34.90% goes to 20 agriculture products such as barley and greasy wool. And 21.10% goes toward metals, where gold has a smaller weight than aluminum or copper.
More and more options are available for investors wanting commodity exposure. Remember that commodities are volatile and have a low correlation to equities. Everyone’s investment needs are different, so review your portfolio and goals to determine if commodity exposure is right for you and if so, what kind of exposure do you want?
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.