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3 Commodity ETFs To Watch In 2014

December 27th, 2013

etfs2013 wasn’t particularly good for commodity investing as the dollar gained more strength compared to several currencies, and stock markets kept hitting new highs day in, day out. Despite this, some agricultural-based products turned around as the year progressed, probably on supply crunch for some soft commodities and global recovery which led to enhanced consumption.

The performance of the broad agricultural commodity fund PowerShares DB Agriculture Fund (NYSEARCA:DBA) displays this gradual improvement. The product lost 14% so far this year while it shed just 3.5% in last three months.

Amid such a backdrop, it would be prudent to pick some agri-based exchange traded products which could be good bets in 2014. Highlighted below are three choices that have the potential to bounce back in the coming year.

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iPath Pure Beta Cocoa ETN (NYSEARCA:CHOC)

Cocoa funds have been the star performers in the agricultural space with CHOC and iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (NYSEARCA:NIB) returning roughly 5% in the last three-month period.

Growing worldwide demand along with a supply crunch is pushing up cocoa prices and subsequently the funds covering this soft commodity.  Since cocoa is the basis of chocolate, demand for the product is rising rapidly in the holiday season.

Further, China is also accounting for the extra demand in the sector with twofold increase in sales over the past 10 years. The growing purchasing power of the middle-income population is driving Chinese consumption ahead of European use.

Moreover, political unrest and inclement weather in major producing regions – Ivory Coast and Ghana – are crippling cocoa supplies thus resulting in failure to meet global demand. As per the International Cocoa Organization (ICCO) the global cocoa production will close 2013 with a significant deficit as opposed to last two years of surplus while grindings (demand) are slated to move higher in the next two seasons.

Hence, According to Rabobank – a global leader in agri-financing – cocoa prices will likely hit its highs in 2014 thanks to deficit concerns. This uptrend in cocoa prices make cocoa exchange traded products a lucrative destination for investors (read: Cocoa ETFs: The Safe Haven In Agricultural Commodities?).

CHOC in Focus 

This note seeks to match the performance of the Barclays Cocoa Pure Beta Total Return Index. Unlike many commodity indexes, this one can roll into one of a number of futures contracts with varying expiration dates, as selected using the Barclays Pure Beta Series 2 Methodology.

This approach might result in less contango. This can be an important factor, as month-to-month shifts in contracts can eat away returns during an unfavorable market situation. The product charges 75 bps in fees.

The ETN gained 12.6% in 2013 – the highest among any other agro-based products. The product currently carries a Zacks ETF Rank #1 (Strong Buy).    

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NYSE:CANE, NYSE:CHOC, NYSE:DBA, NYSE:LSTK, NYSE:NIB


 

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