Another new ETF issue from PowerShares will be listed at the AMEX on February 3rd. DBC (DB Commodity Index Tracking Fund) will track the Deutsche Bank Liquid Commodity Index [DBLI]. The index consists of six commodity futures contracts: Crude Oil, Heating Oil, Gold, Aluminum, Corn and Wheat.
Barclay’s is in registration to issue an ETF based on the better-known Commodity Research Bureau Price Index [CRB]. However, the DBLI features a narrower focus of only six diverse futures contracts versus over twenty for the CRB. The important issue is that the DBLI reportedly fairly duplicates the performance of the CRB despite the construction differences.
Further, in the competitive ETF market, beating your competitor to market makes a big difference. GLD (StreetTracks Gold ETF) versus competitor IAU (iShares Gold ETF) is a case in point where the former beat the latter to market and to this day maintains a vast issuance lead. While the commodity ETFs will have some differences, the overall “trend�? should be the same. Surely, Barclay’s will contend that the CRB issue will have unique characteristics and perhaps they’ll be proven correct.
According to PowerShares, the DBLCI index generated a YTD return of 16.0% as of October 19, 2005 and a return of 26.1% in 2004. The CRB on the other hand returned 23% for “all�? of 2005. Typical of new PowerShares issues, getting historical data from various quote vendors for the index is difficult to come by. Nevertheless, the two indexes will no doubt distinguish one from the other.
The good news is that we finally have an overall commodity ETF. Why good? Investors need as many uncorrelated ETFs to utilize as they can get to reduce risk in conventional portfolios.
The bad news is (ahem), we finally have an all around commodity ETF. Huh? Issuers only like to release new issues when they seem the most overbought thus attracting the most interest (AKA as fee income). The other bad news may be if retail investors can’t find shares to short when desirable. After all, when dealing in commodities it’s just as likely to find investors short as long. Will that be an achievable feature and benefit? We’ll see.
Editor: Here's a full, updated listing of Commodity ETFs and ETNs.