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Commodity ETF's (exchange traded funds) can track the price of single commodities, such as gold or oil, groups of commodities or futures contracts. Commodity ETFs allow access into another asset class besides stocks and bonds, so they give portfolios the benefit of increased diversification.
Commodities are products such as oil, grains, metals, softs (coffee, sugar) and agriculture (cattle, hogs), which are bought using futures contracts. A futures contract is an agreement to buy or sell on a future date at a price set now. Funds must be deposited into a margin account to cover the cost. Contracts are often "rolled", meaning they are not held until maturity. A spot price is the immediate price with immediate delivery.
Investors new and old have been showing an interest in commodities, and most of the money is flowing into exchange traded funds (ETFs). Rapid industrialization in the developing world and a surge in prices have been key factors in attracting investors.
There are more than 18 commodity ETFs and ETNs, one from each subsector is listed below:
- PowerShares DB Commodity Index Tracking Fund (DBC): The PowerShares DB Commodity Index Tracking Fund is based on the Optimum Yield version of the Deutsche Bank Liquid Commodity Index and managed by DB Commodity Services LLC. The Index is a rules-based index composed of futures contracts on six of the most heavily-traded and important physical commodities in the world - crude oil, heating oil, gold, aluminum, corn and wheat.
- Goldman Sachs Crude Oil Total Return ETN (OIL): The iPath Goldman Sachs Crude Oil Total Return Index ETN is a subindex of the Goldman Sachs Commodity Index. The Goldman Sachs Crude Oil Total Return Index reflects the returns that are potentially available through an unleveraged investment in the West Texas Intermediate (WTI) crude oil futures contract plus the Treasury Bill rate of interest that could be earned on funds committed to the trading of the underlying contract.
- streetTRACKS Gold Shares ETF (GLD): The objective of the Trust is for the Shares to reflect the performance of the price of gold bullion, less the Trust's expenses.
- PowerShares DB Agriculture Fund (DBA): The PowerShares DB Agriculture Fund is based on the Deutsche Bank Liquid Commodity Index - Optimum Yield Agriculture Excess Return and managed by DB Commodity Services LLC. The Index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities - corn, wheat, soy beans and sugar. The index is intended to reflect the performance of the agricultural sector.
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