Aberdeen Offers Both A Short And Long-Dated Commodity ETF

Summary

  • The Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF, BCI, is an actively managed ETF based on the Bloomberg Commodity Index. Most contracts are 1 month.
  • The Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF, BCD, is an actively managed ETF based on the Bloomberg Commodity Index-3 Month Forward.
  • As a stand-alone asset, commodity funds are best used with timing models. As a means of portfolio diversification and possible risk reduction, a small allocation appears to work.
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Rising prices and positive percentage price changes of Brent Crude Oil, Natural Gas and Heating Oil on a trading screen for commodities.

Torsten Asmus/iStock via Getty Images

(This article was co-produced with Hoya Capital Real Estate)

Introduction

K-1 free ETFs are gaining popularity as a means of fighting inflation, which appears to be with us for the foreseeable future, but maybe not at the 8+% level we are currently experiencing. COVID induced supply chain issues are fading into the background as the war in the Ukraine is causing grain supply issues and the resulting Russian energy sanctions crimping oil and natural gas supplies, prices might stabilize but at today's high levels.

Chart
Data by YCharts

There are many Commodity ETFs to choose from, including ones that focus on one commodity or one sector of the commodity market. A recent article by Juan de la Hoz (PDBC Vs. DBC: Which Is Best For Commodity Bulls?) compared two of the more popular ones. Here I am comparing two Aberdeen commodity ETFs that haven't been covered on Seeking Alpha:

  • Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF (NYSEARCA:BCI)
  • Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSEARCA:BCD)

The difference in strategy between the two ETFs is the length of the typical future contract used. BCI focuses on 1-month contracts whereas BCD invests using longer-dated contracts. The commodity allocations are fairly close.

Exploring the Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF

Seeking Alpha describes this ETF as:

The fund seeks to track the performance of the Bloomberg Commodity Index Total Return which is composed of futures contracts on physical commodities and is designed to be a highly liquid and broad-based benchmark for commodities futures investments. BCI started in 2017.

Source: seekingalpha.com BCI

BCI has $1.3b in assets and Aberdeen charges 25bps in fees. While the current yield (TTM) is listed at 14+%, that was the result of a large payout in 2021. The average yield over the last few years is under 2%. Distributions occur only in December.

Bloomberg provides this description of their index:

The Bloomberg Commodity Total Return index is composed of futures contracts and reflects the returns on a fully collateralized investment in the BCOM. This combines the returns of the BCOM with the returns on cash collateral invested in 13 week (3 Month) U.S. Treasury Bills. The Index consists of 23 commodities which are weighted 2/3 by trading volume and 1/3 world production with an additional criteria of global economic significance. Weight caps are also applied to limit concentration in a particular sector (33%).

Source: bloomberg.com BCOMTR:IND

BCI holdings review

The ETF holds 23 Futures across four commodity groupings, plus 24 T-Bills, 1 Money Market Fund, and cash. Those allocations are:

BCI ticker

abrdn.com; compiled by Author

T-Bills run from now until the end of 2022 and with the exception of one, all have a coupon of .01%. The MMF carries a .684% coupon.

Futures holdings

BCI ETF

abrdn.com; compiled by Author

The last column removes the non-commodity assets and shows weights using only the Futures themselves. Basically, they double the sector weights listed above.

BCI distribution review

Aberdeen Standard Bloomberg All Commodity Strategy K-1 Free ETF

seekingalpha.com BCI DVDs

Distributions in 2021 were 100% from Ordinary Income.

Exploring the Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF

Seeking Alpha describes this ETF as:

The ETF seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Bloomberg Commodity Index 3 Month Forward Total Return. The index is a three-month forward version of the Bloomberg Commodity Index Total Return used by BCI. BCD started in 2017.

Source: seekingalpha.com BCD

BCD has $215m in assets and Aberdeen charges 29bps in fees. Bloomberg surprisingly didn't provide a definition for this version of the index but elsewhere it was described as the same as the one used by BCI except it is based on longer-dated contracts. While not as large, its year-end payout resulted in a 6% yield, but like BCI the average yield prior to that was under 2%.

BCD holdings review

The ETF holds 23 Futures across four commodity groupings, plus 24 T-Bills, 1 Money Market Fund, and cash. Those allocations are:

BCD ticker

abrn.com; compiled by Author

T-Bills run from now until the end of 2022 and have a coupon of .01%. The MMF carries a .682% coupon.

Futures holdings

BCD ETF

abrdn.com; compiled by Author

Despite the Index name, notice all the Futures expire 4-6 months from June. Like BCI, the largest three exposures are to Nat Gas, WTI Oil, and Gold. The Futures Wt% data reflects only the Futures assets within the portfolio.

BCD distribution review

Aberdeen Standard Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF

seekingalpha.com BCD DVDs

Like BCI, recent distributions are shown as 100% Ordinary Income sourced.

Performance review

Chart
Data by YCharts

Along with Price and Total Return for both ETFs, I included one future representing each of the three largest sector allocations in each fund. I then ran a second, price-only, showing data only for 2022.

Chart
Data by YCharts

I pull two things from this chart. One, contract length currently isn't playing a large role in performance as YTD CAGRs are only 80bps apart. Second, short-term traders could do better focusing on selected commodities versus owning an index-based fund.

Chart
Data by YCharts

The above shows that using the longer-dated contracts has provided better results over time. I suspect some of that comes from the lower hidden costs as contracts are rolled less often.

Portfolio strategy

It has been my view that Commodity funds are best used with timing models or one's "gut feeling" that commodity prices are going to continue to rise. Most of the time these funds are treading water or declining, interspersed with wild rides up. But, there is a second reason to allocated some funds to commodities: diversification, as shown in the next table.

commodities vs stocks

abrdn.com

With an almost zero correlation to the S&P 500 and a negative one to bonds, for investors wanting an overall smoother ride and willing to maybe give up from return to achieve that, these funds make sense. To demonstrate that, I compared two SPY/BCD portfolios against each ETF since 2017.

SPY ETF

PortfolioVisualizer.com

Indeed, adding BCD to a pure SPDR S&P 500 ETF (SPY) allocation lowered the StdDev and made a large reduction in the Worst Year data. Both combination portfolios also outperformed SPY by itself. These improvements occur even at very small allocations to BCD.

Final thoughts

Both ETFs have similar charts showing the spreads between price and NAV. Since the scale is in basis-points, the differences are really minor, as the second chart indicates, showing data when the recent spread reached 215bps, or 2.15%, on March 14th.

k-1 free ETFs

abrdn.com BCD

This chart shows the last time the Price/NAV had a wide difference.

Chart
Data by YCharts

Here is a small list of the ETFs covered here, plus other commodity ETFs (and one CEF) for those readers interested in exploring this class of funds.

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This article was written by

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I have both a BS and MBA in Finance. I have been individual investor since the early 1980s and have a seven-figure portfolio.  I was a data analyst for a pension manager for thirty years until I retired July of 2019. My initial articles related to my experience in prepping for and being in retirement. Now I will comment on our holdings in our various accounts. Most holdings are in CEFs, ETFs, some BDCs and a few REITs. I write Put options for income generation. Contributing author for Hoya Capital Income Builder

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