Commodities ETFs: Exposure Through Futures or Producers?

Currently, the recovery in the commodity markets has lagged behind their producers as the rising equity indices and rising profit margins have helped lift producer company stocks. Nevertheless, the commodities market may see improved fundamentals ahead.

“Commodities may see further upside capture as continued supply side destruction in response to multiple years of overproduction and supply gluts may provide a boost for prices,” Gold said. “Additionally, while falling capital expenditure has boosted producer profitability in the short term, without sufficient investment into new supply and technology long term profitability may suffer.”

On Demand Webcast: Why Commodity ETFs Should Be Part of Your Diversified Portfolio

Investors interested in diversifying their portfolios with commodities exposure have a number of ETF options available to them. ETF Securities recently came out with a line of ETFs to outperform the widely observed Bloomberg Commodity Indices without the need to worry about troublesome K-1 forms come tax season, including the actively managed ETFS Bloomberg All Commodity Strategy K-1 Free ETF (NYSEArca: BCI) and ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BCD).

BCI tries to provide long-term capital appreciation that exceeds the performance of the Bloomberg Commodities Index. It may not invest in all the components of the benchmark but will hold similar interests to those included in the index, along with short-term investment-grade fixed-income securities, money market instruments, certain bank instruments and cash or other cash alternatives. The underlying Bloomberg Commodities Index tracks the price of rolling positions in a basket of commodity futures with a maturity between 1 and 3 months.

BCD tries to provide long-term capital appreciation that exceeds the performance of the Bloomberg All Commodity Index 3 Month Forward Index, which tracks movements in the price of rolling position in a basket of commodity futures with a longer maturity between 4 and 6 months.

For more information on the commodities market, visit our commodity ETFs category.