Commodity ETF Traders Have to Be Picky

With the U.S. dollar strengthening and global growth concerns lingering, the commodities market have stumbled. Nevertheless, traders can still find some opportunities, but they will have to target single commodity-specific exchange traded funds.

The PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), the largest commodity-related ETF and tracks a broad basket of the 14 most heavily traded commodities, has declined 12.6% over the past three months. Meanwhile, the iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG), which includes a broader group of 24 commodities, has decreased 13.5%.

Citigroup analysts attribute the commodities’ poor performance to a “trifecta” of factors, including rising supply and diminished demand for oil, expectations for a bumper crop harvest in the northern hemisphere, and a surging U.S. dollar, reports Neil Hume for Financial Times.

Over the past three months, the United States Brent Oil Fund (NYSEArca: BNO) declined 18.7% while the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate oil, fell 14.8%. [Saudi Arabia’s Ambitions Keep Pressure On Oil ETFs]

U.S. farmers are harvesting a bumper crop year, with record corn and soybean crops. The Teucrium Corn Fund (NYSEArca: CORN) and the Teucrium Soybean Fund (NYSEArca: SOYB) are off 20.4% and 13.2%, respectively, year-to-date. [Record Harvests Chase Investors From Agriculture ETPs]

Meanwhile, the PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), which tracks the price movement of the U.S. dollar against a basket of currencies, gained 6.6% over the past three months. A stronger dollar makes USD-denominated commodities more expensive for foreign buyers, specifically gold and other precious metals. The SPDR Gold Shares (NYSEArca: GLD) has dropped 8.0% over the past three months.

While investors still want commodity exposure for their diversification qualities, some are beginning to take a more pick-and-choose approach.