David Fry: Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication, and nearly 40 years in the investment business, we can help select those ETFs that matter and may or may not be repetitive. The result is a more manageable list of issues from which to view and make selections.
With inflation pressures waxing and waning many believe it’s important to have exposure to direct agricultural commodities. Why? Because commodity markets often feature noncorrelated performance with conventional portfolios. Further when prices of foodstuffs are rising it makes sense to be able to profit or even hedge from these negative events. This naturally would include other commodity ETF/ETN products that have come to market directed toward metals, energies and currencies. We’ve cobbled some good choices together and where repetitive choices exist we’ve paired some together similarities are just too hard to ignore.
As a former CTA (Commodity Trading Advisor) and CPO (Commodity Pool Operator) I know the value of having an allocation of most portfolios to the commodity sector. These provide increased diversification opportunities for any portfolio. And, in nearly 40 years of seeing these positive effects during a variety of market conditions, I know first-hand their benefits.
We’re not ranking these ETFs favoring one over another so don’t let the listing order mislead you. Although we may use some of these in ETF Digest portfolios it’s not our intention to recommend one over another.
Whereas our previous technical analysis methodology involved using evaluating monthly charts commodity markets must be viewed with shorter time horizons. This is due to obvious increased volatility but also due to the peculiar nature with which underlying commodity contracts trade. Some contracts expire monthly and others quarterly. Some have serious seasonal characteristics inherent with agricultural issues such as growing seasons, weather and disease. Therefore, it pays to be more active and utilize a combination of weekly and daily charts to manage risk.
Four other risk factors should be considered:
- The CFTC’s varying considerations regarding commodity position limits as applied to the assets of ETF and ETNs—still in limbo.
- The credit quality of ETNs given these are “notes” many guaranteed by Barclay’s and Deutsche Bank.
- Backwardation (back month contracts lower than front month) and Contango (back months higher than front month) can negatively affect contract rollover for investors.
- Since most commodities trade in dollars, the value of the dollar can positively or negatively affect performance.
Deutsche Bank features inverse and leveraged long ETNs for those investors wishing to hedge or speculate.
PowerShares/DB Agricultural ETF (NYSE:DBA) follows the DBIQ Diversified Agriculture Index Excess Return which is composed of futures contracts on the most widely traded agricultural commodities. The fund was launched in January 2007. The expense ratio is .75%. AUM (Assets under Management) equal $2.8 billion and average daily trading volume is 2M shares. As of mid-August 2011 there would only be a special dividend if any and YTD return is 1.60%.
Data as of August 2011
DBA Top Ten Holdings & Weightings
- Coffee ‘c’ Future Sep11: 13.19%
- Cocoa Future Sep11: 11.87%
- Sugar #11(World) Jul12: 11.76%
- Live Cattle Futr Aug11: 7.94%
- Soybean Future Nov11: 7.65%
- Corn Future Dec11: 7.62%
- Wheat Future(Kcb) Jul12: 5.34%
- Lean Hogs Future Aug11: 4.99%
- Corn Future Mar12: 4.89%
- Live Cattle Futr Oct11: 4.33%
Barclays iPath Grains Total Return ETN (NYSE:JJG) follows the Dow Jones-UBS Grains Subindex Total Return which is an index composed of just three futures contracts in Soybeans, Corn and Wheat. The fund was launched in October 2007. The expense ratio is .75%. AUM equals $275 million and average daily trading volume is 178K shares. As of mid-August 2011 a dividend would be highly unlikely ever and YTD return is -2.03%
Barclays iPath Agriculture Sub-index ETN (NYSE:JJA) follow the Dow Jones-UBS agriculture Subindex Total Return Index which is composed of seven futures contracts on agricultural commodities. The fund was launched in October 2007. The expense ratio is .75%. AUM equal $20 million and average daily trading volume is 55K shares. As of mid-August 2011 the YTD return -2.44%.
Teucrium Corn ETP (NYSE:CORN) follows the rollover of corn futures traded on the CME and by its structure is designed to give investors unleveraged exposure to corn futures contracts. The fund was launched in June 2010. The expense ratio is 1.42%. AUM equal $130 million and average daily trading volume is 171K shares. As of mid-August 2011 the YTD return has been 23%.
Barclays iPath Sugar ETN (NYSE:SGG) follows the Dow Jones-UBS Sugar Subindex Total Return Index which simply consists of one futures contract of sugar which is rolled over upon contract expiration. The fund was launched in June 2008. The expense ratio is .75%. AUM is $65 million and average daily trading volume is less than 20K shares. As of mid-August the YTD return was 1.09%.
Another market for your consideration is Barclays iPath Softs ETN (NYSE:JJS) which follows sugar, coffee and cotton futures contracts in much the same manner as SGG alone. The fund was launched in June 2008. The expense ratio is .75%. AUM equals $35 million and average daily trading volume is less than 5K shares. As of mid-August 2011 the YTD return was -1.50%.
Barclays iPath Cotton ETN (NYSE:BAL) follows the Dow Jones-UBS Cotton Subindex Total Return Index which is a single commodity consisting of rolling over one cotton futures contract. The fund was launched in June 2008. The expense ratio is .75%. AUM equal $63 million and average daily trading volume is 86K shares. As of mid-August 2011 the YTD return was -11.55%.
ELEMENTS Rogers International Agriculture ETN (NYSE:RJA) follows the Rogers International Commodity Index-Agricultures Total Return which is an index of 20 agricultural commodity futures contracts and is a sub-index of the Rogers International Commodity Index. The fund was launched in October 2007. The expense ratio is .75%. AUM equal $53 million and average trading volume is less than 700K shares. As of mid-August 2011 the YTD return was -4.38%.
Barclays iPath Coffee ETN (NYSE:JO) follows the Dow Jones-UBS Coffee Subindex Total Return which is another single commodity product investing in a single coffee futures contract which is continuously rolled-over. The fund was launched in June 2008. The expense ratio is .75%. AUM equal $35 million and average daily trading volume is less than 25K shares. As of mid-August 2011 the YTD return was 1.48%.
Barclays iPath Livestock ETN (NYSE:COW) follows the Dow Jones-UBS Livestock Subindex Total return which is currently composed of two livestock commodities—lean hogs and live cattle—which are traded and rolled over on U.S. exchanges. The fund was launched in October 2007. The expense ratio is .75%. AUM equal $89 million and average daily trading volume is 17K shares. As of mid-August 2011 the YTD return -1.40%.
UBS Bloomberg Food ETN (NYSE:FUD) follows the UBS Bloomberg CMCI Food Index Total Return Index which provides direct exposure to a basket of 11 futures contracts from agricultural and livestock sectors. The fund was launched in April 2008. The expense ratio is .65%. AUM equal $45 million and average daily trading volume is less than 10K shares. As of mid-August 2011 the YTD return was 4.05%.
There’s a rapidly expanding series of direct commodity ETFs and ETNs especially when inflation pressures wax and wane. We’ve chosen to feature some that may be repetitive but clearly have something to offer as well.
One thing seems clear when viewing many of these ETFs are the similar trend patterns many have presented. This is primarily due to globalization but also is the result of easy monetary conditions throughout the developed world allowing for higher prices for many commodities despite misleading official inflation data.
For further information about portfolio structures using this or other ETFs see http://www.etfdigest.com/undefined/.
(Source for holding data is from ETF Database and from various sponsors.)
David is founder and publisher of ETF Digest and best selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management published by Wiley Finance in 2008. In July of 2009, Fry was named in the ETF Hall of Fame as one of the Top 25 people who revolutionized the ETF industry and guided ETF investing from its conception to widespread acceptance among all breeds of investors. Fry founded the ETF Digest in 2001 and was among the very first to see the need for an online publication that provided individual investors and financial professionals with trading tools, market information and actionable advice on ETF investing. ETF Digest was recently ranked 9th in the Top 100 ETF websites from Alexa on exchange traded funds. Dave Fry has devoted over 35 years to the business of trading and portfolio management. He is registered as an arbitrator with the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).