The U.S. dollar is weaker to start 2017 and that is prompting some investors to allocate capital to commodities, including commodities exchange traded products, such as the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC).
DBC, which offers exposure to multiple commodities, is among the commodities exchange traded products that can deliver for investors if markets readjust toward the idea that the U.S. dollar is due for a near-term pullback and that global economic growth will support increased commodities demand.
DBC currently features exposure to about 15 commodities. Those include heavily traded commodities such as gold, silver and West Texas Intermediate oil futures, as well as more obscure commodities fare such as sugar, wheat and zinc.
“Global commodity flows on a net basis in January rose by $3.3 billion, bringing total commodity index assets under management (AUM) to $172.3 billion, according to a new report by RBC Capital Markets commodity strategist Christopher Louney,” reports CNBC.
A prolific asset gatherer among commodities exchange traded products this year has been the PowerShares DB Optimum Yield Diversified Commodity Strategy Portfolio (NasdaqGM: PDBC). PDBC has added over $383 million in new assets year-to-date.
PDBC follows the DBIQ Optimum Yield Diversified Commodity Index Excess Return, “an index composed of futures contracts on 14 heavily traded commodities across the energy, precious metals, industrial metals and agriculture sectors,” according to PowerShares.
Most commodity-related exchange traded funds track a basket of futures securities. Consequently, investors should understand how the underlying futures markets work and the effects they will have on ETFs.
DBC and the United States Commodity Index Fund (NYSEArca: USCI) eschew rolling front month contracts, which can lead to underperformance, especially in a contangoed market. Instead, DBC targets futures contracts that offer the highest implied roll yield while USCI rebalances each month and selects the most-backwardated contracts and then the seven highest-returning contracts.
DBC has seen year-to-date inflows of $203.5 million while investors have allocated $158 million to the PowerShares DB Agriculture Fund (NYSEArca: DBA). The PowerShares DB Agriculture Fund tries to reflect the performance of the Diversified Agriculture Index Excess Return, which is comprised of futures contracts on the most liquid and widely tracked agriculture commodities.
For more news and strategy on the Agriculture market, visit our Agriculture category.