The demand for a finite natural resources and long-term weakness in the U.S. dollar are major market themes. Commodity exchange traded fund investors can take advantage of the daily price changes that reflect the tug-of-war between supply and demand or take on a long-term macroeconomic view.
“Historically, commodities have maintained very low correlations to equities and bonds and high correlation to inflation,” according to Morningstar analyst Abraham Bailin. “Longer-term performance of the asset class indicates that commodities remain a good portfolio diversifier.”
Additionally, further economic expansion, notably in the emerging markets, along with the expanding global population, will generate greater demand for our planet’s raw resources. [List of Silver ETFs]
“The U.N. projects an 11% global population increase by 2020 and a 20% increase by 2030,” Bailin added. “At the same time, the global middle class’ surging growth will compound demand for food and energy as diets and transportation habits become more like the West’s.”
Currently, the S&P GSCI Commodity Index is rising to a six-month high as commodities futures gain on the improved U.S. economic outlook and optimism over the Greece bailout, according to Bloomberg. [List of Top Gold ETFs]
Broad commodity funds allow investors to gain exposure to the price movements of a basket of commodities through futures contracts. Since broad commodity funds hold futures contracts, investors should be aware that the funds are subject to contango or backwardation in the futures market. [Five Things to Know About Commodity ETFs]
Broad commodity ETFs include:
- E-TRACS DJ-UBS Commodity Index Total Return ETF (NYSEArca: DJCI)
- GreenHaven Continuous Commodity Index Fund (NYSEArca: GCC)
- iShares GSCI Commodity-Indexed Trust Fund (NYSEArca: GSG)
- PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC)
- United States Commodity Index Fund (NYSEArca: USCI)
- Dow Jones-AIG Commodity Index Total Return ETN (NYSEArca: DJP)
- E-TRACS Constant Maturity Commodity Index ETN (NYSEArca: UCI)
- ELEMENTS Rogers International Commodity Index ETN (NYSEArca: RJI)
- ELEMENTS S&P Commodity Trends Indicator ETN (NYSEArca: LSC)
- Goldman Sachs Commodity Index GSCI Total Return Index ETN (NYSEArca: GSP)
- PowerShares DB Commodity Long ETN (NYSEArca: DPU)
- PowerShares DB Commodity Short ETN (NYSEArca: DDP)
- S&P GSCI Commodity Sector Returns Index ETN (NYSEArca: GSC)
It should be noted that exchange traded notes are unsecured debt obligations subject to the creditworthiness of the issuing bank. If the issuer goes under, investors may lose their principal. [What Are ETNs? – The Truth About Credit Risk]
Inverse and leveraged commodity funds:
- PowerShares DB Commodity Double Long ETN (NYSEArca: DYY)
- PowerShares DB Commodity Double Short ETN (NYSEArca: DEE)
- ProShares Ultra DJ-AIG Commodity ETF (NYSEArca: UCD)
- ProShares UltraShort DJ-AIG Commodity ETF (NYSEArca: CMD)
For more information on commodity funds, visit our commodity ETFs category.
Max Chen 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.