ETF Trends
ETF Trends
  • Broad commodities exchange traded products have been a mixed bag this year
  • Rising precious metals have helped prop up these funds, as has the recent surge in oil prices
  • Commodities investors need to be careful of potentially limited upside for the asset class

Broad commodities exchange traded products, such as the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), have been a mixed bag this year. Rising precious metals have helped prop up these funds, as has the recent surge in oil prices.

However, agriculture commodities have been a drag, making evaluation of these funds critical for potential investors. Another name in the diversified commodities ETF group to consider is the iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG). Regardless of chosen product, commodities investors need to be careful of potentially limited upside for the asset class.

Providing a window into the low demand for raw materials, China, the second largest economy in the world, has been buying less from the global markets. On Tuesday, China revealed imports declined 13.8% last month, compared to a 18.8% drop in January, reports Mark Magnier for the Wall Street Journal.

DBC, which holds a basket of various commodities, is also in the red, but that fund has heavy energy exposure, levering it to oil prices. DBA lacks that catalyst and is dependent on positive price action in ags and softs, areas of the commodities complex that have languished this year.

GSG “is even more heavily weighted toward energy futures, which account for approximately 70% of the fund’s portfolio. Metals, agriculture and livestock are also reflected in its performance. The fund tracks the S&P GSCI Total Return Index, which is designed to reflect the overall performance of a diversified selection of commodities that are among the most actively traded on futures exchanges in major developed countries. Unlike ETFs that hold futures contracts on the actual underlying commodities, this ETF holds long futures contracts on the GSCI Total Return Index itself,” according to Investopedia.

The $719.5 million GSG has a three-year standard deviation of nearly 19%.

Other fundamental factors are weighing on the commodities outlook. For instance, signs of a slowdown in China, the world’s second largest economy, could translate to diminished demand for raw materials from the emerging market. China is the world’s second largest oil consumer and biggest consumer of most metals, accounting for about 45% of demand in most major base metals.

iShares S&P GSCI Commodity-Indexed Trust