When inflationary pressures abound, investors can sidestep the direct effects with assets like the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) and the Invesco DB Agriculture Fund (DBA).
Commodities are assets that have tangible properties, such as oil, agricultural produce, precious metals, and raw metals. They give investors alternative assets that are relatively uncorrelated to broad stock market indexes.
Commodities can serve as a barometer for economic health. When the economy is picking up steam the way it has been, demand for commodities increases.
Investors can use commodity-focused ETFs to help stave off the effects of inflation. Invesco offers one dynamic duo.
On one hand, there’s PDBC, which utilizes an active management strategy to seek 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.
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.
For the year, PDBC is up almost 30%. The fund is up almost 70% over the past year.
Agriculture in Focus
Up 19% for the year versus the S&P 500’s 11%, DBA gives investors the inflation hedge of commodities with strong performance. The fund is up 40% within the past year.
DBA seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return over time, plus the excess, if any, of the sum of the fund’s Treasury Income, Money Market Income, and T-Bill ETF Income, over the expenses of the fund. The index, which is comprised of one or more underlying commodities, is intended to reflect the agricultural sector.
The fund pursues its investment objective by investing in a portfolio of exchange-traded futures.
“This ETF is one of the most popular options for achieving exposure to agricultural commodities; DBA invests in a diversified basket of various agricultural natural resources, and as such can be a useful diversifying agent or inflation hedge,” an ETF Database analysis suggested.
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