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Commodities ETF

From copper and oil to corn and livestock - commodities offer the potential for high returns not closely correlated with the performance of stocks and bonds.

Commodity prices are moving up with a dollar in decline, lack of investment in supply infrastructure, booming demand from emerging economies and the fact that commodities are a hedge against falling equity markets.

The popularity of commodities based ETF's (exchange traded funds) is on the rise. One must remember commodities are volatile, even during the best of times. Also note most of the commodities ETFs are not old enough to accurately gauge their performance.

Many believe the commodities ETFs are useful for a long-term investment and diversification - some will track a broad basket of commodities rather than just one. It's also important to remember commodities don't really track the market, they have zero correlation.

Not only do these ETFs work as diversifiers, some people seem them as a play on globalization and expect increased development in countries such as Russia and China to drive up the prices.

On the negative side, the cost of trading futures can affect returns. These ETFs are vulnerable to "contango" when they have to roll into futures contracts that cost more than the ones that are expiring.

Gold, silver and oil have had successful histories and unique cycles.

PowerShares DB Commodity Index Tracking Fund (DBC) is comprised of light, sweet crude oil, heating oil, aluminum, gold, corn and wheat.

If you're looking to focus on oil, the United States Oil Fund (USO), which tracks the price of crude oil, is recommended.





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