Investors can utilize exchange traded funds to target specific commodity opportunities as the commodities market begins to show greater divergence among its various components.
Over the past three months, the broader commodities market has been turning around. For instance, the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) rose 2.3% and iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG) increased 4.2%.
Nevertheless, investors can also target specific commodities to capture changes in fundamentals of the underlying market. For example, the United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, gained 8.7% over the past three months and the iPath Dow Jones UBS Agriculture Sub-Index ETN (NYSEArca: JJA) rose 5.8%.
Agricultural or grains-related commodities have also recently been outperforming, with JJA up 11.5% over the past month. Leading the charge in the soft commodities space, the Teucrium Corn Fund (NYSEArca: CORN) was 13.9% higher and Teucrium Wheat Fund (NYSEArca: WEAT) advanced 14.8 over the past month.
Meanwhile, other areas like industrials metals have been weaker. Over the past three months, he PowerShares DB Base Metals Fund (NYSEArca: DBB), which tries to evenly split its portfolio with aluminum, copper and zinc futures, declined 3.8% and the iPath Dow Jones UBS Industrial Metals Total Return Sub-Index Total Return ETN (NYSEArca: JJM) fell 5.2%.
“It has been a mixed bag for the asset class as a whole,” Aakash Doshi, analyst at Citigroup, said in a Financial Times article.
The diverging performance among commodities could continue to persist through the rest of the year as fundamental factors show a greater effect on prices. For instance, oil prices could remain capped, with a supply glut hanging over the market.
“Strong demand growth is needed to reduce what still appears a very large oil overhang,” Kevin Norrish, head of commodities research at Barclays, said in the article.
The El Nino weather phenomenon is affecting weather conditions and cutting into the supply outlook on agricultural products. [Great Grains: Dueling Views on Ag Commodity ETFs]
“Extreme weather from El Niño may be the biggest driving force in the solid gains for every single one of the eight commodities in the sector in June,” Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices, said in the FT article.
Meanwhile, industrial metals are at the mercy of fluctuations in China. The subdued economic data from China added to concerns about global growth, along with demand for other raw resources that fuel the growth.
For more information on commodities, visit our commodity ETFs category.
Max Chen contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.