“From 1970 to 2004, commodities were negatively correlated with other asset classes like global equities and domestic bonds,” according to Morningstar analyst Abby Woodham. “The correlation between commodities and the S&P 500 rose significantly after the financial crisis in 2008 but appears to be declining again today. A 2006 study by Ibbotson Associates also showed that including commodities in portfolios improved their risk and return characteristics.”
The PowerShares ETF tracks futures contracts on 14 commodities and employs an optimum-yield methodology that chooses the best implied annual roll yield to diminish the negative effects of contango in the futures market. DBC has a 0.85% expense ratio.
The iPath exchange traded note also tracks a group of commodity futures contracts. However, the ETN is a debt obligation that is subject to the credit worthiness of the underwriting bank. DJP has a 0.75% expense ratio.
The iShares ETF tracks the S&P GSCI Total Return Index of 24 commodities and includes heavy oil-related exposure. GSG has a 0.75% expense ratio.
For more information on commodities, visit our commodity ETFs category.
Max Chen contributed to this article.