ETF Watch: 3 ‘No K-1’ Commodity Funds Filed

A recent filing from PowerShares indicates the firm is planning to roll out three actively managed ETFs targeting various segments in the commodity space that will not involve K-1 forms. The PowerShares Agriculture Commodity Strategy No K-1 Portfolio, PowerShares Base Metals Commodity Strategy No K-1 Portfolio, and the PowerShares Energy Commodity Strategy No K-1 Portfolio will invest in commodities via a Cayman Islands-headquartered subsidiary, and invest the collateral stateside in U.S. government securities, money market funds and corporate debt securities.

Each ETF’s offshore subsidiary will invest in commodity futures and commodity-linked instruments, and is limited to 25% of the parent fund’s portfolio. Although the commodities portion of each ETF is actively managed and seeks to outperform its benchmark, each fund’s advisor uses a rules-based approach and invests primarily in the commodities in the benchmark.

The use of the subsidiary means the funds will not require investors to fill out K-1 tax forms, something many investors consider to be an inconvenience.

The agriculture fund uses the DBIQ Diversified Agriculture Index Excess Return for its benchmark; the index covers corn, soybeans, wheat, Kansas City wheat, sugar, cocoa, coffee, cotton, live and feeder cattle, and lean hogs futures. Meanwhile, the base metals ETF will be tied to the DBIQ Optimum Yield Industrial Metals Index Excess Return, which covers aluminum, Grade A copper and zinc.

Finally, the energy ETF uses the DBIQ Optimum Yield Energy Index Excess Return as its benchmark. That index covers light oil, sweet crude oil, heating oil, Brent crude oil, RBOB gasoline and natural gas.

The filing did not indicate a ticker or expense ratio, but it did note that the funds will list on the Nasdaq stock exchange.

Contact Heather Bell at [email protected].