“Inflation is the increase in the amount of currency required to purchase goods and services,” according to the note. “Commodities can help protect investment portfolios against inflation because they represent the value of the goods, not the value of the currency.”
Investors interested in gaining exposure to commodities assets can take a look at the actively managed PowerShares DB Optimum Yield Diversified Commodity Strategy Portfolio (NasdaqGM: PDBC). PDBC is comprised of futures contracts on 14 heavily traded commodities, including aluminum, Brent crude, copper, corn, gold, heating oil, light crude, natural gas, RBOB gasoline, silver, soybean, sugar, wheat and zinc. [PowerShares Kicks the K-1 With New Commodity ETF]
Commodity ETFs and other funds that invest in futures contracts are susceptible to contango in the futures market – contango occurs when the price on a futures contract is higher than the expected future spot price. Since ETFs that hold futures contracts sell the contracts before they mature and purchase a later-dated contract, the ETF loses money each time it rolls contracts to a costlier later-dated contract in a contangoed market.
However, PDBC tries to negate the negative effects of contango by selecting futures contracts with the highest implied roll yield.
Financial advisors who are interested in learning more about the commodities market can register for the Thursday, December 11 webcast here.