The Highest Yielding Commodity ETF Is… (UNG, REMX)
Jared Cummans: Today’s investing environment has led many investors to search for strong dividend yields. With near zero interest rates and an uncertain debt market, turning to dividends has become one of the most popular strategies to grace an investors portfolio since the recession began. For commodity investors the search was quite difficult; many commodity investors stick primarily to futures contracts or futures-based assets like the United States Natural Gas Fund (NYSEARCA:UNG) among others. But for those who look closely enough, there are some enticing yields in the space [see also 12 High-Yielding Commodities For 2012].
Commodity ETFs have exploded in assets in recent years, especially the commodity producing funds that track mining and exploration companies. Lo and behold these also happen to be some of the highest distributing funds in the space. For the time being, one ETF reigns supreme in the dividend category, the Market Vectors Rare Earth/Strategic Metals ETF (NYSEARCA:REMX).
REMX tracks an index which is intended to give investors a means of tracking the overall performance of publicly traded companies primarily engaged in a variety of activities that are related to the mining, refining and manufacturing of rare earth/strategic metals. Since launching in late 2010 it has amassed just over $160 million in assets and trades just over 65,000 times per day; a relatively popular fund for such a young age [for more commodity ETF analysis subscribe to our free newsletter].
Taking a peek under the hood of this fund, REMX allocates roughly 80% of its assets overseas though its biggest single-country weight still goes to the US. It should also be noted that the fund contains mostly mid and small cap firms which will make it more volatile than a standard large cap product. The fund has lost just over 14% this year and is down nearly 30% since inception.
All that aside, REMX takes the cake in the dividend space as far as commodity ETFs are concerned, as the fund has a current 12 month yield of just over 7.4%. It should be noted that the fund debuted in late 2010 and did not make its first payout until the end of 2011, as it makes distributions just once per year. That being said, trusting the fund to maintain its current yield may be a tall order for some, as there is only one other payment to base a decision on. Also, the current bid ask spread shows a gap of about 12.6%, which should make any investor cautious prior to making an order [see also The Ten Commandments of Commodity Investing].
It is nice to see, however, that in its distribution, it did not make any capital gains allocations which can be a pain for ETF investors. The fund also has a fair amount of long term potential as these metals’ and elements’ use grows along with our technological landscape. If the fund does uphold its payout of 7% and more, this could be a strong addition to your portfolio, but it is probably not a good allocation for the more risk-averse investor.
Written By Jared Cummans From CommodityHQ Disclosure: No Positions.
CommodityHQ offers educational content, analysis, and commentary on global commodity markets. Whether you’re looking to speculate on a short-term jump in crude or establish a long-term allocation to natural resources, CommodityHQ has the information you need.