Three Commodity ETFs Surging Higher

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November 3, 2013 8:57pm NYSE:JJN NYSE:NIB

three 3Most of the commodities have performed terribly this year; but some of them have been showing strength of late on recovering macro fundamentals, improving global trends,

a weak U.S. dollar and supply/demand imbalances.

Political uncertainty in the U.S. has been temporarily averted, China is picking up slowly and Europe is seeing positive improvements (read: Play a Resurgent Europe with These ETFs). Further, tight supply conditions and recovering global demand coupled with ‘no taper’ by the Fed last month boosted prices for most of the products, in particular softs and industrial metals.

Below, we have highlighted some of the top performing ETFs from these two corners of the commodity market that have delivered handsome returns over the trailing one-month period. Any of these could be excellent plays for investors seeking to ride out the sudden move in the softs and industrial metals space.

Dow Jones-UBS Sugar Subindex Total Return ETN (SGG)

Sugar has been the top performer in the broad commodity space over the past month. The recent surge can be traced to the supply disruption in the world’s largest sugar-exporting terminal, Copersucar, caused by fire. In addition, poor weather conditions in Brazil, the largest sugar producer in the world, are posing threats to sugar harvest.

However, global supply glut and increased production from India, the second biggest producer of the crop on earth, could keep prices at check.

One product that has largely benefited from the recent trend is SGG. The ETN tracks the Dow Jones-UBS Sugar Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on sugar. The index currently consists of one futures contract on the commodity of sugar.

The note has expense ratio of 0.75% and has amassed $33.8 million in its asset base. Volume is light, suggesting additional cost in the form of a wide bid/ask spread. Though the ETN gained nearly 10% in the past one month, the long-term outlook does not look bright as the product has a Zacks Rank of 5 or’ Strong Sell’ rating.

iPath Dow Jones-UBS Cocoa Subindex Total Return ETN (NIB)

Cocoa price has been on the rise on growing chocolate demand and bad weather conditions in the two major producing nations of West Africa. This trend is expected to continue in the coming months thanks to the upcoming holiday season that would continue to fuel demand for chocolate. 

Further, the global cocoa market would be in production deficit for the next four consecutive years, according to the International Cocoa Organization (read: (read: 2 Commodity ETFs Offering Investors Sweet Returns).

Investors seeking to play this rally in cocoa prices could find NIB an intriguing option. This ETN tracks the Dow Jones-UBS Cocoa Subindex Total Return. The index delivers returns through an unleveraged investment in the futures contracts on cocoa and currently consists of one futures contract on the commodity (read: all the agricultural ETFs here).

The product charges 75 bps in fees per year and trades in small volume of nearly 36,000 shares on average daily basis. This increases the trading cost in the form of a wide bid/ask spread. The fund is also unpopular and has attracted just $45.4 million in assets this year. The note added nearly 6.5% in the trailing one month and currently has a Zacks Rank of 3 or ‘Hold’ rating.

iPath DJ-UBS Nickel Total Return Sub-Index ETN (JJN)

Nickel prices are made an impressive comeback of late, as the excessive oversupply situation is reversing and the demand from alloy industries is rising.

Indonesia, the largest exporter of nickel ore in the world, is seeking to prohibit ore exports at the beginning of the New Year. This move would come as a big boon to nickel and drive prices much higher next year.

A good way to play this trend is with JJN. The note provides exposure through an unleveraged investment in the futures contracts on nickel. It tracks the Dow Jones-UBS Nickel Subindex Total Return, which consists of one futures contract on the commodity. The product has managed assets worth $4.9 million and trades in paltry volume, which increases the total cost of trading beyond the expense ratio of 0.75%.

JJN added over 6% over the trailing one month. The product has a Zacks Rank of 1 or ‘Strong Buy’ rating, suggesting that it could outperform in the broad commodity world over the next one-year period (read: all the Top Ranked ETFs).

Bottom Line

The recent trends have been encouraging for the trio that clearly outpaced the broad commodity fund PowerShares DB Commodity Index Tracking Fund (DBC) by wide margins. Investors could definitely focus on these ETFs for a positive play on commodities that are currently enjoying the run-up in their prices in the recent weeks.

This article is brought to you courtesy of Eric Dutram.

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