PowerShares' DBA and DBC: The New Originals

A reader asked for my take on the PowerShares Agriculture Portfolio (DBA) after that fund needed to make some changes to avoid running into positions limits. The PowerShares Commodity Index Tracking Fund (DBC) also made changes for similar reasons.

I've not had much interest in DBC or other funds that try to take in the entire commodity complex. I'd rather not have that much in crude oil or the other energy commodities as these funds usually have. DBA has been a client and personal holding for quite a while.

The reason I wanted agricultural exposure is that it seems fairly clear that diets globally are going to improve, including more protein and then a little dessert. Also, I am inclined to think that demand for ag commodities are likely to be more inelastic than for industrial metals or energy (less economic sensitivity) .

This table of old DBA versus new DBA comes from IndexUniverse (click to enlarge):

The new version of the fund looks a lot like the Rogers Intl Commodity Index-Agriculture Total Return ETN (RJA). I've written positively about the index underlying RJA in a few different places, but I was never comfortable enough with the ETN wrapper to choose RJA over DBA.

Personally I'm thrilled for the better diversification. I like the idea of covering a lot of agricultural ground for clients, and the new DBA is a better way to do that, in my opinion, as a core holding. Keep in mind, I keep all positions quite small. "Core" does not have to mean 10% of the portfolio. I think anyone wanting to take a flier on a single commodity could reliably use the ETNs from iPath.

Gold also has a place at this table. Some view it as an inflation hedge, some view it as actual money, but I think of it as something that will very likely go up in the face of an external shock. Yet I never want it to be the best performing thing I own, because if it is then chances are stocks in general are doing poorly.

Some folks like platinum in this context. Platinum is scarcer and is consumed (palladium can be a substitute for catalytic converters) which might account for the pounding in platinum prices during the worst of the bear market, while the drop in gold was much smaller. If platinum can drop that much versus gold then perhaps it can go up that much versus gold but if that were to turn out to be true then its acting as a substitute for gold loses some, ahem, luster.

The title is a reference to the movie Spinal Tap. The New Originals was one of that band's names early in their history.

Comments

[Battlebots:]

The new DBA goes to 11.

Oct 06 10:24 AM

[Roger Nusbaum:]

LOL yes it does


On Oct 06 10:24 AM Battlebots wrote:

> The new DBA goes to 11.

Oct 06 10:41 AM

[Analyste de...:]

Roger, I looked at the website and didn't see the detailed info I wanted - it's been announced that these (and other ETFs, like UNG and USO) have been forced by CFTC to diversify market exposure internationally. Which bourses, and what perecentages?

I think there's a story there. I'd hope someone with access can review that assertion/claim.

I very much like the idea of a Global Natural Gas Producers-Consumer Index, weighting open-market futures contracts from the relevant bourses. After all, global commodity prices are true market. In an era with a declining USD and rising inflation (to say nothing of Uncle Sam's wretched history of price manipulation), this should be a double-win for US investors. Global ag would be, too.

Just a thought/ wishful thinking.

Oct 06 02:45 PM

[rbbrand:]

Roger, how would you evaluate this new DBA versus GCC?

Oct 07 10:19 AM

[Roger Nusbaum:]

i'm not sold on the idea of needing to get it all in one product. GCC has energy exposure which as mentioned above is something i'm not interested in (rather get energy exposure through stocks).

for people looking to get it all in one product then GCC's lower weighting makes it more attractive in that context.


On Oct 07 10:19 AM rbbrand wrote:

> Roger, how would you evaluate this new DBA versus GCC?

Oct 07 11:02 AM

[I know nothing:]

Own RJA and DBA,RJA sponsor majority owner is government of Sweden if I remember correctly so not concerned on ETN.If there is reason to be would appreciate info on why I should be?Thanks and Good luck.

Nov 08 01:06 PM