A number of exchange-traded fund (ETF) and exchange-traded note (ETN) products track the various commodity indices surveyed in an earlier post. Before diving into the commodity index funds, a few points should be noted. All broad-based commodity indices are based on commodity futures contracts, not the spot prices of commodities. The expectation is that the commodity indexes will be correlated with commodity prices but may not track them perfectly. The ETFs and ETNs surveyed in this post track the total return version of the commodity index. A total return index combines the returns of the underlying commodity index with the returns of cash collateral invested in T-bills.
If you are unfamiliar with ETNs, Investopedia has an excellent primer. Note that since ETNs are unsecured debt securities, they are subjected to credit risk. The consensus opinion seems to be that ETN gains (or losses) will be treated as capital gains (or losses) but the tax consequences are by no means settled.
Dow Jones-UBS Commodity Index based securities
The iPath Dow Jones-UBS CI Total Return ETN (NYSE Arca: DJP), which has a MER of 0.75%, appears to be the most popular commodity ETN. As noted in the earlier post, the underlying index tracks futures contracts in 19 commodity markets.
The UBS E-TRACS DJ-UBS CI Total Return ETN (NYSE Arca: DJCI) also tracks the same index. The MER is 0.50% but the ETN is thinly traded.
S&P Goldman Sachs Commodity Index based securities
iShares S&P GSCI Commodity-Indexed Trust (NYSE: GSG) is an ETF that tracks the energy-heavy S&P GSCI. The MER is 0.75%.
iPath S&P GSCI Total Return Index ETN (NYSE Arca: GSP) tracks the same index for a MER of 0.75%. Interestingly, the ETF has tracked the index better than the ETN.
Rogers International Commodity Index (RICI) based securities
The ELEMENTS linked to RICI – Total Return Structured Product (NYSE: RJI) is an ETN that tracks the RICI index for a MER of 0.75%. As noted earlier RICI tracks a diverse basket of 37 commodities.
I couldn’t find a fund that tracks the Thomson Reuters / Jefferies CRB Index but the Greenhaven Continuous Commodity ETF (NYSE Arca: GCC) tracks an equal weighted index of 17 commodities. The MER of GCC is 0.85%. The fund also has an estimated futures brokerage fee of 0.24%.
The most popular commodity ETF is the PowerShares DB Commodity ETF (NYSE: DBC). It tracks the DB Liquid Commodity Index, a basket of 14 commodity futures. Energy has a 55% weighting followed by agriculture (22.5%), industrial metals (12.5%) and precious metals (10%). The MER is 0.85% and the estimated futures brokerages expenses are 0.08%.
DJP and DBC appears to be the most popular with commodity investors. DJP is an exchange-traded fund that tracks a more diverse index. DBC is an exchange-traded fund tracking an index that has a high energy concentration. With so many products now tracking commodities, will this asset class continue to provide the equity-like returns coupled with low correlation it did in the past?
