The much-anticipated Deutsche Bank Commodity Index Tracking Fund (DBC) began trading on the American Stock Exchange (AMEX) in February. The fund tracks a custom commodities index created by Deutsche Bank, which consists of six commodities futures contracts at the following weights:
• Light, sweet crude oil (35 percent)
• Heating oil (20 percent)
• Aluminum (12.5 percent)
• Corn (12.5 percent)
• Wheat (12.5 percent)
• Gold (10 percent)
The weightings will be reset on an annual basis. The energy contracts are rolled forward on a monthly basis, while the aluminum, corn, wheat and gold contracts are held for one-year terms.
The index's simple construction distinguishes it from the five other major U.S. commodity indexes, which hold between 17 and 35 commodities contracts.
After a post-launch expense reduction, DBC charges investors 1.3 percent in annual expenses. That is high for an ETF, but well below the 2-plus percent charged by the average commodity mutual fund on the market today.
Like most commodities funds, DBC will purchase futures contracts on margin, with the excess cash invested in U.S. Treasuries. Based on current rates, the fund expects to earn almost 5 percent in interest on those deposits.
DBC marks the first time the SEC has approved an ETF that relies on derivatives contracts. As one industry observer noted, once you approve derivatives, it's "Katie Bar The Door" as far as what can be equitized on the stock market: Leveraged ETFs, hedged products, and a thousand other possibilities open up..