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The Year-Long Hiatus For Exchange-Traded Commodity Vehicles

07 December 2011 at 1:29 pm by Gary Gordon     Bookmark and Share    Follow EtfExpert on Twitter

Many investors have used¬†precious metals¬†to hedge against¬†weak monetary policies of central banks around the world. Other investors believe that you can’t go wrong with “black gold,” since the global demand for oil will eventually outstrip the¬†available supply.

On these simple assessments, those who chose the PowerShares DB Precious Metals Fund (DBP) have seen their selection rise 22% over the previous 12 months; those who selected the PowerShares DB Oil Fund (DBO) have been rewarded with roughly 7% year-over-year.

However, other than¬†a few choice commodities — gold, silver, oil — heavy exposure to additional exchange-traded commodity¬†funds/notes have¬†others feeling numb. Natural gas, grains, timber, copper, diversified agriculture and diversified¬†industrial metals have underperformed U.S. stocks¬†as measured by the S&P 500 SPDR Trust¬†(SPY).

What’s Up (Or Down) With Commodity ETFs/ETNs? ¬† ¬†
            Approx 1-Year %
PowerShares DB Precious Metals (DBP)     22.2%
PowerShares DB Oil (DBO)       7.0%
S&P 500 SPDR Trust (SPY)       4.6%
iPath DJ AIG Livestock ETN (COW)     2.1%
iShares S&P GSCI Total Commodity (GSG)     1.6%
PowerShares DB Agriculture (DBA)     -6.8%
iPath DJ AIG Total Commodity (DJP)      -7.3%
iPath DJ AIG Agriculture ETN (JJA)     -13.2%
PowerShares DB Base Metals (DBB)     -14.5%
iPath DJ Grains (JJG)         -16.5%
iPath DJ Copper (JJC)         -16.6%
United States Natural Gas Fund (UNG)     -40.1%


In part, the poor performance can be attributed to the growth slowdown in China. That said, Chinese officials recently shifted from a tightening bias to a loosening bias with a lowering of their bank reserve requirements.

In theory, the increased likelihood of a¬†soft economic landing in China coupled with increased demand¬†for¬†“stuff”¬†should have boosted¬†underperforming commodities over the previous week. In practicality, however, industrial metals¬†jumped on the¬†China news, whereas other Commodity ETFs/ETNs¬†failed to¬†fully support¬†a “risk on” appetite.

Performance Since China Lowered Bank Reserve Requirements    
PowerShares DB Precious Metals (DBP)     1.6%
PowerShares DB Oil (DBO)       1.8%
S&P 500 SPDR Trust (SPY)       5.7%
iPath DJ AIG Livestock ETN (COW)     -2.6%
iShares S&P GSCI Total Commodity (GSG)     1.1%
PowerShares DB Agriculture (DBA)     -1.5%
iPath DJ AIG Total Commodity (DJP)      0.2%
iPath DJ AIG Agriculture ETN (JJA)     -0.6%
PowerShares DB Base Metals (DBB)     4.2%
iPath DJ Grains (JJG)         -1.2%
iPath DJ Copper (JJC)         4.5%
United States Natural Gas Fund (UNG)     -5.6%


It is possible, if not probable, that ongoing concerns over a pan-European recession is depressing¬†commodity prices. What’s more, there is still an unusually high demand for U.S. dollars, dampening desire for commodity assets which are priced in greenbacks.

Nevertheless, one should continue monitoring China ETFs as well as China economic data. The more evidence for a soft economic landing in China, the more likely that commodities of all stripes would recover bullish momentum.

You can listen to the ETF Expert Radio Show ‚ÄúLIVE‚ÄĚ, via podcast or on your iPod. You can follow me on Twitter @ETFexpert.

Disclosure Statement: ETF Expert¬†is a web log (‚ÄĚblog‚ÄĚ) that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.

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