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

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Includes: DBC, DJP, GSG
by: Tom Lydon

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.

ETF GSG

  • 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.

ETF DJP

  • 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.

ETF DBC

Max Chen contributed to this article.