Weakness in gold, oil and other commodities has pushed natural resources ETFs such as PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) into the red this year. Commodity ETFs could see more pain if the decade-long rally or “supercycle” is over as China’s economic growth slows.
Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management, in a Bloomberg commentary says the pullback in commodity prices the past few months is actually good news for the global economy.
“The China-commodity connection is breaking. After three straight decades of ultrafast growth, China’s inevitable slowdown has let air out of the bubble: Since the peak in April 2011, the broadest available measure of commodity prices has fallen 16%,” Sharma wrote. “In recent months, money has started flowing out of exchange-traded funds for most commodities.”
DBC was little-changed on Monday in above-average trading volume. The commodity ETF invests in a basket of futures contracts, including oil, gold, natural gas, silver and wheat.
The fund is down about 5% year to date.
“Broad-basket commodity products will likely interest two kinds of investors: those who believe global demand for commodities will grow in coming years, and those seeking diversification and an inflation hedge,” says Morningstar analyst Abby Woodham in a profile of DBC. “In the past, commodities had low correlations to stocks, but correlations have risen significantly since the 2008 financial crisis.”
PowerShares DB Commodity Index Tracking Fund
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