The commodities market and related exchange traded notes have been outperforming a slew of broad asset classes this year as investors turned to hard assets for diversifying their portfolios.
The Dow Jones-UBS Commodity Index, which follows 21 commodities, rose 8.1% this year, outperforming broad U.S. equities, 10-year Treasury bonds and high-yield corporate debt, reports Neil Hume for Financial Times. [Gold, Silver ETFs Pleasantly Surprised in June]
The related iPath Dow Jones-UBS Commodity Index Total Return ETN (NYSEArca: DJP) has increased 8.4% year-to-date, while the UBS ETRACS DJ-UBS Commodity Index Total Return ETN (NYSEArca: DJCI) gained 8.2%. DJP has $1.7 billion in assets under management and comes with a 0.75% expense ratio. DJCI is slightly smaller at $136.4 million in assets, but it shows a cheaper 0.50% expense ratio. [Demand Soars for Energy ETFs]
After the financial downturn, commodities were caught up in broad moves, mirroring market turns and losing their diversification benefits. However, investor sentiment for commodities has improved this year. More are looking at commodities as a diversifier for a balanced portfolio, with traders seeing lower correlation between commodities and other asset classes.
“The diversification benefits of commodities have started to resonate with investors as correlations between commodities and other asset classes broke down,” Tom Kendall, head of global commodities research at Credit Suisse, said in the FT article.
As the correlation between commodities and other assets breaks down, the hard assets can trade based on fundamentals, like seasonal supply and demand.