3 Low Correlated ETFs Surging In Shaky Markets [PowerShares DB Agriculture Fund, ETFS Physical Palladium Shares]

etfs etfsNeena Mishra: The S&P 500 index managed to close last week with a small gain as slightly better-than-expected earnings, dovish comments from the Fed Chairwoman and strong retail sales numbers provided some comfort to investors.

On the flip side, weak housing numbers and slowing growth in China have added to their worries.

In the next couple of weeks, earnings may drive the market higher or lower.  But the chances of a strong rebound remain rather slim and risks of a bigger pull back cannot be ruled out. Broader stock market gains may rather be muted this year as the Fed gradually withdraws its support.

Despite broader stock market gyrations, some ETFs have been shining this year and their outlook suggests that they still have room to run. Further their low correlations with the market make them very attractive as portfolio diversifiers for better risk-return performance over longer-term.

Correlation with SPY

YTD Performance


*based on 5 year performance
**based on 3 year performance

PowerShares DB Agriculture Fund (NYSEARCA:DBA)

While the broader measure of inflation remains subdued, food prices have been surging this year. Droughts in various grain growing regions have led to a sharp increase in the price of coffee, cocoa and wheat. (Read: Energy Exploration ETFs—A Bright Spot in Choppy Markets?)

Soybean and corn prices have also jumped on tight supplies and rising export demand. Political unrest in Ukraine continues to push up US exports and grain prices.

The price index for pork is up 16.5% from a year ago as pork supplies are being affected by a disease that has killed millions of young pigs. Price for beef has been surging even more and saw its biggest monthly change in February since November 2003, mainly due to tight supplies resulting from drought.

Further, the long-term demand for food will continue to go up thanks to booming global population and rising incomes in emerging markets.

DBA is a convenient way to get exposure to widely traded agricultural commodities through futures. Top futures holdings in the index are corn, soybeans, sugar and live cattle-each with a 12.5% weight. The fund has amassed close to $1.6 billion in AUM and sees volume of over 500,000 shares a day. 

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