Top Performing Commodity ETFs Of 2017

This year's top-performing commodity is at a 16-year high.

It's much too early to say the commodities rut is over. By and large, the asset class remains out of favor with investors, and even on a performance basis, things simply haven't been that encouraging.

Every single broad-market commodity ETF is down in the year-to-date period through July. Losses range from less than 1% for the ETRACS UBS Bloomberg Constant Maturity Commodity Index TR ETN (UCI) to 9.5% for the GS Connect S&P GSCI Enhanced Commodity TR Strategy ETN (GSC).

In many cases, individual commodities are doing even worse than the broad indices suggest. The most widely followed commodity in the world, crude oil, is down about 6.6% through the end of July, fueling a 12.3% loss for the United States Oil Fund (USO).

The United States Natural Gas Fund (UNG) is down 32.3%; the iPath Pure Beta Sugar ETN (SGAR) is down 25.1%; and the United States Agriculture Index Fund (USAG) is down 7.1%.

Improvement Since Bloodbath

All that said, this isn't a story about how bad commodities are doing. That's because they aren't doing all that bad―at least compared with the bloodbath in 2014 and 2015.

Commodities need to be looked at in the context of cycles, and if 2016 was a year of across-the-board recovery from extremely oversold levels, 2017 is shaping up to be a year of moderation, with traders being more discerning about which commodities to buy and sell.

Even though many commodities have pulled back this year, plenty have climbed higher. Those are the commodities we'll highlight here.

Palladium At 16-Year High

At the top of the heap is a precious metal that's used primarily as an autocatalyst in gasoline vehicles―palladium. The ETFS Physical Palladium Shares (PALL), with its 31% gain for the year, is far and away the top-performing commodity ETF of the year.

Earlier this summer, palladium prices reached as high as $917/oz, which is the richest price since 2001. Sister-metal platinum now trades at a mere $50 premium to palladium, compared with an average premium of $775 over the past decade.

Industry authority Johnson Matthey estimates the supply deficit in the palladium market may leap from 163,000 ounces last year to 792,000 ounces this year.

"World automotive demand is forecast to exceed 8 million autos for the first time, with further growth in world gasoline car production and tighter emissions legislation in China, Europe and North America," wrote the firm in a recent report.

China Powers Base Metals
After palladium, the next-best-performing commodity is another metal―copper, which hit a two-year high at the end of July. Exchange-traded products such as the iPath Pure Beta Copper ETN (CUPM), the iPath Bloomberg Copper Subindex Total Return ETN (JJC) and the United States Copper Index Fund (CPER) gained between 13.5% and 14.5% this year.

Powering copper's ascent has been a potential ban by China on imports of scrap metal, scrap wire and scrap motor starting in 2018. China hopes the move will reduce pollution, but it would also decrease the supply of scrap copper in the country, and increase the demand for other forms of copper, such as refined and concentrate.

Copper isn't the only metal getting a boost from China. Aluminum jumped to a two-year high this summer, leading the iPath Bloomberg Aluminum Subindex Total Return ETN (JJU) to an 11.4% gain.

China will launch an investigation into the illegal expansion of aluminum capacity, according to a Reuters report, potentially reducing supply.

"This is all about the looming cutback to Chinese supply growth, due to both the current investigation into illegal capacity, and in the medium to longer term the expected slowdown in Chinese capacity growth," Julius Baer analyst Carsten Menke told Reuters. "Demand is not the issue—it's all about supply."

Gold Still In Demand

Rounding out the list of the 10 top-performing commodities is an investor favorite, gold. There are three ETFs tied to the yellow metal on the list, including the iShares Gold Trust (IAU), the ETFS Physical Swiss Gold Shares (SGOL) and the SPDR Gold Trust (GLD), each with gains of just over 10%.

Gold prices remain supported by persistently low global bond yields, which reduce the opportunity cost of holding the metal, which is widely regarded as a safe haven. Investors continued to add to their gold ETF holdings, with 109.1 metric tons coming into the space during Q1, according to the World Gold Council.

At the same time, central banks added 76.3 metric tons to their stockpiles. Both figures are down from last year, but suggest there's still a healthy demand for gold from all segments of the market, despite surging stock markets around the world.

For a full list of this year's top-performing commodity ETFs, see the table below:

Contact Sumit Roy at [email protected]