Sizing Up Broad Active Commodity ETFs

September 29, 2016

When it comes to investing in commodities through a broad-market ETF that’s actively managed, choices are few. But the wide dispersion in returns among them this year makes the choice an important one.

Today there are only six actively managed commodity ETFs on the market. Only four of those six compete in the broad-market category, and of those four, only two have been around for a while—the other two just launched this month.

So, if you own an active broad commodity ETF today, you probably own one of the two following funds:

Both are broad commodities strategies. Both are actively managed. But year-to-date, their performances couldn’t be less similar. PDBC is up almost five times as much as FTGC, with gains of 10.6% so far in 2016—one of the best-performing broad commodities ETFs this year—while FTGC is up 2.5% in the same period, sitting among the bottom performers.

Chart courtesy of StockCharts.com

What’s more, both active funds are underperforming the passive PowerShares DB Commodity Index Tracking Fund (DBC), the largest and most liquid commodities broad market ETF, with $2.3 billion in assets and PDBC’s passive “sister fund” if you will.

Sector Allocations The Difference

What’s behind the 8-percentage-point performance difference in 2016 between PDBC and FTGC? Sector allocations have something to do with it.

PDBC allocates most heavily to gasoline, heating oil, Brent crude and WTI crude, and natural gas, which, combined, represent roughly 50% of the portfolio. It’s an energy-heavy fund.

One of the PDBC’s largest allocations, to Nymex NY Harbor heating oil futures expiring in June 2017, is up 10.5% year-to-date. This position alone represents more than 11% of the portfolio.

By comparison, FTGC allocates only about 2% to heating oil. FTGC’s biggest allocations are to metals: gold, nickel and silver. Together, they represent about 30% of the fund—or more than twice the allocation in PDBC, which doesn’t even include nickel in its mix.

Exposure to agricultural commodities is also different, at about 24% in PDBC versus 30% in FTGC—some of these markets are at multiyear lows.

 

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