Commodities exposure continues to be a strong play through 2021 as prices continue to rise, making ETFs like the Invesco DB Commodity Index Tracking Fund (DBC) a prime option.
With inflation picking up, DBC can give investors a proper hedge against rising prices. Moreover, the upside in the sector altogether is translating into gains of almost 40% for DBC.
“It has been a banner year for fossil-fuel, metals and agricultural markets,” a Wall Street Journal report said. “For many commodity traders, the boom in prices has had an unexpected effect: a credit crunch that is reshaping the industry in favor of the largest players.”
“Higher prices are requiring traders to borrow more money to finance the same volume of oil, copper or coffee,” the report said further. “In some instances, extreme or unusual weather is causing gyrations in commodity prices, prompting traders to amass cash in a pinch.”
Per the fund’s description, DBC seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return (DBIQ Diversified Agriculture Index ER or Index), plus the interest income from the fund’s holdings of primarily U.S. Treasury securities and money market income less the fund’s expenses.
An Active Option to Consider
Another way to play the rise in commodities is via an active management strategy employed by funds like the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC). Like DBC, PDBC is also up close to 40% on the year.
By using an active management strategy, PDBC seeks long-term capital appreciation. The fund 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, precious metals, or raw metals. They give investors alternative assets that are relatively uncorrelated to broad stock market indexes.
Furthermore, PDBC offers exposure to commodity futures without the tax hassle of a K-1. The fund also attempts to avoid “negative roll yield,” which could erode returns over time.