That being said, performance in commodities has been far from even this year. For example, while gold is up 16% year-to-date, natural gas is down 21%, and oil is close to flat.
Thus, even while commodities as a whole may have turned the corner, the rebound would do you no good if you bought the wrong one. Instead, as the research suggests, investors are better off buying a broad basket of commodities as a component to a well-diversified portfolio.
ETF Selection Key
Most exchange-traded funds that track broad commodity indexes are up this year, but not all of them. The iPath Pure Beta Broad Commodity ETN (BCM | C-24), for example, gained 2.8% this year, while the iPath S&P GSCI Total Return ETN (GSP | D) fell by 3%.
Perhaps more than any other asset class, the differences between the various broad-commodity ETFs are stark. BCM, for example, tracks the Barclays Commodity Index―which weights its holdings based on liquidity and caps the weight of commodity sectors at 35%. It also picks and chooses which futures contracts to hold in an effort to mitigate the effects of contango.
Meanwhile, GSP and the iShares S&P GSCI Commodity ETF (GSG | D-91) track the S&P GSCI, which is production-weighted and doesn't cap any sectors. That leaves energy with a massive 70% weight in those ETFs.
GSP and GSG don't use any contango-mitigation techniques, which helps explain their underperformance this year.
For exposure to the S&P GSCI with contango mitigation, the iPath Pure Beta GSCI-Weighted ETN (SBV | D-62) and the GS Connects S&P GSCI Enhanced Commodity Total Return Strategy ETN (GSC | F-88) fit the bill.
Bloomberg Commodity Index
In the middle of the pack are a host of other commodity ETFs that track other big-name commodity indexes, all with their own unique twists. One of the most popular of these is from Bloomberg.
The iShares Commodity Optimized ETF (CMDT | D), the iPath Bloomberg Commodity Index Total Return ETN (DJP | C-18), and the Etracs Bloomberg Commodity Index Total Return ETN (DJCI | C-48) follow the Bloomberg Commodity Index (formerly the Dow Jones-UBS Commodity Index).
The Bloomberg index weights its holdings two-thirds by trading volume and one-third by world production, while capping the weights of the various commodities it holds.
DJP uses a simple front-month strategy to get its exposure to the index, while CMDT tries to optimize its contracts to mitigate contango and maximize backwardation.
The Bloomberg ETFs are all up less than 1% so far this year.