Think About Using Commodity ETFs as a Portfolio Diversifier | ETF Trends

Recent strength in the precious metals complex underscores the importance of including alternative assets in an exchange traded funds portfolio to achieve greater diversification.

Broad commodity exchange traded product options include the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), iPath Dow Jones-UBS Commodity Index Total Return ETN (NYSEArca: DJP) and iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG) have been gaining ground. Over the past week, DBC is up 2.3%, GSG is up 2.5% and DJP is up 1.7%. Meanwhile, the S&P 500 has gained 0.7% over the past week.

The Standard & Poor’s GSCI Spot Index of 24 raw materials touched 665.5475 Thursday, it’s highest level since Aug. 29, Bloomberg reports.

In the commodities market, oil has been steadily rising off the back of increased risk in the Iraq as escalating violence increases the chance of pipeline disruptions. [Oil Rising, but Traders Skirt Leveraged ETFs]

Additionally, gold prices were strengthening as a safety bet. The precious metal also gained ground after Fed chair Janet Yellen signaled that the low rate environment will persist. [Gold ETFs Heading For Second Weekly Gain on Iraq Safety Bets]

Investors should consider including some commodities exposure within their ETF investment portfolios as a way to protect against inflation and enhance portfolio diversification – commodities have traditionally shown a low or negative correlation with traditional asset classes over long periods.