Choosing The Right Commodity ETF

March 17, 2016

Equal-Weighting Schemes

Meanwhile, the WisdomTree Continuous Commodity ETF (GCC | C-5) tracks the Thomson Reuters Equal Weight Continuous Commodity Index. GCC equal-weights 17 commodities and uses futures contracts averaged across the nearest six months of the futures curve to maintain its exposure.

Another ETF with an equal-weighting scheme is the United States Commodity ETF (USCI | D-11). Unlike GCC, USCI's basket of commodities isn't static. Each month, it picks the seven commodities with the greatest backwardation (or least contango) and the seven commodities with the greatest 12-month price momentum and equal weights them.

Another product with a similar strategy but with little in the way of assets is the Credit Suisse X-Links Commodity Rotations ETN (CSCR | F-16), which equal-weights eight commodities with the most backwardation.

Active Management

For those who believe commodity picking is a viable strategy, two actively managed ETFs are available in the space. The First Trust Global Tactical Commodity Strategy Fund (FTGC | C) is one such active fund. Currently, FTGC is heavy on agriculture.

Another option in the active space is the PowerShares DB Optimum Yield Diversified Commodity Strategy (PDBC | F). Using active management, PDBC aims to outperform its sister fund, the PowerShares DB Commodity Tracking ETF (DBC | D-26).

DBC is the most popular ETF in the broad commodity segment, with $1.9 billion in assets, and tracks the DBIQ Optimum Yield Diversified Commodity Index. DBC holds a capped, production-weighted basket of 14 commodities, while employing contango-mitigation techniques.

Broadest Exposure

Finally, there are two funds that provide broader exposure to the asset class. The Elements Rogers International Commodity Total Return ETN (RJI | C-28) holds commodities as diverse as orange juice, milk, and rapeseed. The constituents of the underlying index are chosen by a committee of "wise people" and is based on world consumption patterns and liquidity.

Meanwhile, the Etracs CMCI Total Return ETN (UCI | C) tracks an index of 28 commodities weighted based on "economic importance."

RJI uses front-month futures for its exposure, while UCI uses five different futures contracts per commodity in an effort to reduce contango.

Ticker Name Return (%)
BCM iPath Pure Beta Broad Commodity ETN 2.78
CMDT iShares Commodity Optimized 0.97
GCC WisdomTree Continuous Commodity 0.90
USCI United States Commodity 0.90
UCI Etracs CMCI Total Return ETN 0.56
CSCR Credit Suisse X-Links Commodity Rotation ETN 0.47
DJCI Etracs DJ-Bloomberg Commodity Total Return 0.35
DJP iPath Bloomberg Commodity Index Total Return ETN 0.29
FTGC First Trust Global Tactical Commodity Strategy 0.15
RJI Elements Rogers International Commodity - Total Return ETN -0.67
GSC GS Connect S&P GSCI Enhanced Commodity Total Return Strategy ETN -0.93
PDBC PowerShares DB Optimum Yield Diversified Commodity Strategy -1.12
DBC PowerShares DB Commodity Tracking -1.19
SBV iPath Pure Beta S&P GSCI-Weighted ETN -1.51
GSG iShares S&P GSCI Commodity -2.67
GSP iPath S&P GSCI Total Return ETN -3.02

Note: Returns based on year-to-date change in NAVs.

Contact Sumit Roy at [email protected].

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