Deutsche Bank Diversifies Commodity-Linked Funds

by on October 2, 2009 | ETFs Mentioned:

Deutsche Bank recently announced that the PowerShares DB Agriculture Fund (DBA) and PowerShares DB Commodity Index Fund (DBC), two of the most popular commodity-linked funds, will dramatically expand the underlying baskets of commodities by the end of the month. DBA, an ETF that tracks agricultural products, will increase its holdings from four commodities to 11 by adding cocoa, coffee, cotton, feeder cattle, Kansas wheat, lean hogs, and live cattle.

Meanwhile DBC, an ETF tracking a broad commodity index, is increasing the number of commodities in its basket from six to fourteen by adding brent crude, copper grade A, natural gas, RBOB gasoline, silver, soybeans, sugar, and zinc. The funds will start to rebalance on October 19, 2009, at a rate of approximately 10% per trading day, and expect to be fully transitioned on or about October 31, 2009.

wheatThe changes in weightings should decrease the volatility of the funds by significantly broadening the scope and number of components. Fod DBA, the biggest decrease will come from weighting of sugar, which is currently at 39% of the fund and will go down to 12.5% in coming weeks. The changes will also decrease the fund’s holdings in Chicago Corn and Wheat. Thanks to DBA’s inclusion of the agricultural animals, the fund is now much more comprehensive and a better barometer for the agricultural prices. The “old” DBA would rebalance to have an equal weighting with 25% in sugar, corn, wheat and soybeans. The new breakdown as well as the exchanges the commodities trade on is listed below:

Commodity % Exchange
Corn 12.5% CBOT
Soybeans 12.5% CBOT
Wheat 6.25% CBOT
Kansas Wheat 6.25% KCB
Sugar 12.5% ICE
Cocoa 11.11% ICE
Coffee 11.11% ICE
Cotton 2.78% ICE
Live Cattle 12.5% CME
Feeder Cattle 4.17% CME
Lean Hogs 8.33% CME

Meanwhile in the broad-based DBC, the numerous additions will create some overlap with the agricultural fund, (specifically soybeans, wheat, corn, and sugar), but will help to diversify the fund out of light sweet crude (which currently makes up 35%) and heating oil (which currently makes up 20% of the fund). The new fund breakdown is listed below and shows significant cuts in the weightings of aluminum, corn, and wheat.

Commodity % Exchange
Light, Sweet Crude Oil (WTI) 12.375% NYMEX
Heating Oil 12.375% NYMEX
RBOB Gasoline 12.375% NYMEX
Natural Gas 5.500% NYMEX
Brent Crude 12.375% ICE-UK
Gold 8.000% COMEX
Silver 2.000% COMEX
Aluminum 4.167% LME
Zinc 4.167% LME
Copper Grade A 4.167% LME
Corn 5.625% CBOT
Wheat 5.625% CBOT
Soybeans 5.625% CBOT
Sugar 5.625% ICE-U.S.

Disclosure: No positions at time of writing.