The ag complex continues to march forward, driven in large part by ballooning prices for corn and wheat. In all, it's been a good year for ag bulls. The svelte Powershares DB Agriculture Fund (NYSEARCA:DBA) has risen 17.8 percent in the last six months alone.
Svelte? Why svelte?
Because the ETF has an equal smattering of only four commodities: Corn, Wheat, Soybeans and Sugar. No oats or canola complicate the recipe.
For asset allocators, this streamlined portfolio could have nicely counteracted the lackluster performance of large-cap equities over the past six months. The granddaddy of all ETFs, S&P Depository Receipts (NYSEARCA:SPY), has managed to eke out only a 1.7 percent gain for the period.
Commodities prices, of course, are noted for their volatility. But, as we've seen over the past few months, stock prices aren't exactly snoozers on the variance front. SPY celebrated the twentieth anniversary of 1987's Black Monday by dropping 2.7 percent, for example. Just two months before, on August 9, the fund swooned 3 percent for the day. The red letter—or rather, number—day for DBA over the past six months was October 2, a 3.9 percent stumble. All tolled, DBA's annualized volatility over the period is 20.3 percent, not much more than SPY's 15.6 percent.
Where DBA, and many other ETFs for that matter, have some catching up to is liquidity. SPY averages a daily volume of 174 million shares. DBA's averaging 312,000 per day. To the extent you believe volume influences liquidity—and for ETFs that's a contentious issue—it would take a 238 million share trade to move SPY's price 1 percent independent of a change in its underlying index. At current levels, a 1-percenter for DBA requires only 288,000 shares.