Commodity ETFs Are Heating Up: Which One Is Right for You?

Commodity prices and the ETFs that follow them have seen a dramatic jump this year, but the growth in prices are tapering off. Are commodities no longer in high demand or are we just on pause?

The prices of commodities surged from March to June, but growth has slowed since then, remarks Harvey Jones for The Motley Fool. For the long-term, investment guru Jim Rogers thinks the current commodities bull market will run till 2022.

The spike in commodities prices was attributed to Chinese demand for raw materials and financial speculators looking to offset potential falls in the dollar and inflation. The rally was not driven by a global recovery in trade and economic activity. Eventually, countries and especially emerging markets will be demanding commodities to feed and drive their economies.

There is a possibility of deflation, which could quickly reduce commodity prices.

Individual commodities have many different factors that affect the their prices. Commodities have varying economic cycles, most are non-correlated to equities and some commodities prices change with the weather. One of the basic factors is that of supply and demand.

Rather than trying to guess which commodity will outperform, you may want to consider a broad-based ETF that gives exposure to the total asset class. Also be sure to have a strategy; you can read about the one we use here.

• iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG): up 14.2% for the year; Almost half of the index reflects crude oil, and the balance is split between other energy products such as natural gas as well as agricultural commodities, industrial and precious metals and livestock.

• iPath Dow Jones-AIG Commodity Index Fund ETN (NYSEArca: DJP): up 17.1% for the year; has holdings in oil, copper, natural gas, gold, aluminum, zinc, sugar and more.

• PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC): up 13.7% for the year; has weightings in heating oil, natural gas, oil, silver, corn, wheat and soybeans.

Max Chen contributed to this article.

Comments

[Mad Hedge F...:]

ind Those of you searching for the “new normal” better take a close look at the China National Offshore Oil Company’s (CNOC) efforts to top Exxon Mobil’s (XOM) $4 billion bid for development rights to a giant new field off West Africa. This is only the latest chapter in a global bidding war for essential resources they, and we, need. Long gone is the day when the Standard Oil Company only needed to deliver King Saud a new Cadillac every year to assure rights to his kingdom’s oil supplies, even though it often had to be towed by teams of camels, as there was no refining capacity yet on the peninsula. Decades later, I was part of a SWAT team at Morgan Stanley whose schmoozing kept the crude flowing and the cash surpluses recycling. Having grown up in the desert near Indio, California, I was the only one in the company who actually liked caravanning out into the desert to scoop up cooked rice with my fingers off of giant brass platters, and guzzle illicit Johnny Walker Red, said to be smuggled in by a wayward member of the royal family. I never did get used to the sheep brains, though. But I digress. To the current generation of oil traders, I might as well be talking about the Pax Romana than the Pax Americana, which is now equally ancient history. The hard truth is that they are out there bidding against the new 800 pound gorilla in the market, as are others for coal, iron ore, copper, gold, silver, wheat, corn, soybeans, and myriad other essentials. If you have any doubts about China’s acquisitive determination, look at the chart below showing that the Middle Kingdom’s outbound direct investment is outstripping inbound investment for the first time. Will the Pebble Beach Golf Course next? For you and I, this means we can count on the price of everything to go up in the future, a lot. Keep food, commodity, and energy ETF’s permanently on your radar, like the PowerShares agricultural (DBA), the Rogers International Commodities (RJI), and the Oil Trust (USO). Jim Rogers, are you listening?

Oct 22 07:55 PM