2021’s tax filing deadline was postponed another month, but the extension only delays the inevitable headache for commodities investors. The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) offers an alternative.
PDBC is an actively managed ETF that seeks to achieve its investment objective by investing in a combination of financial instruments that are economically linked to the world’s most heavily traded commodities. Commodities are assets that have tangible properties, such as oil, agricultural produce, or raw metals.
As the name of the ETF suggests, the highlight of PDBC is avoiding the tax hassle of a K-1 form. The form is used to report earnings for partnerships, such as funds that invest in commodities.
“While a partnership itself is generally not subject to income tax, individual partners (including limited partners) are liable to be taxed on their share of the partnership income, whether or not it is distributed,” an Investopedia article explained. “A K-1 is commonly issued to taxpayers who have invested in limited partnerships (LPs) and some exchange traded funds (ETFs), such as those that invest in commodities.”
PDBC provides investors with a diverse array of commodities including oil, copper, aluminum, gold, corn, and soybeans. Thus far in 2021, the fund is up 19%.
Commodities on the Rise
As noted by PDBC’s performance, commodities have been on the rise as of late. It all starts with a serendipitous rise of oil following last year’s large drop in prices.
Other commodities are following in tow, such as industrial metals like copper and aluminum.
“While most investors have their eyes on the Nasdaq or Bitcoin, it is interesting to note that the best performing asset class since the beginning of the year (excluding cryptocurrencies) is commodities,” an Entrepreneur article pointed out. “The price of Brent crude oil is back above $60 a barrel, copper is at an 8-year high, and palladium is back to where it was 6 years ago.”
“After being shunned in asset allocations for more than a decade, the idea of a return to grace for commodities is starting to gain momentum among strategists,” the article added. “Indeed, JP Morgan has just published research according to which commodities have started a new ‘super-cycle.'”
Commodity super-cycles are long time periods when commodities typically trend higher than their long-term price trends, according to Institutional Investor. Signs of an investing super-cycle include a weaker dollar, fiscal stimulus, and infrastructure spending.
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