The Futures Free Commodity ETFdb Portfolio is now available to ETFdb Pro members, offering an option for those who wish to construct a portfolio that offers well-rounded exposure across commodities, while at the same time avoiding any futures-based products. This portfolio may appeal to investors who are bullish on the global economic recovery and foresee rising commodity prices, but are wary of using futures-based ETFs to achieve exposure.
The Futures Free Commodity ETFdb Portfolio is constructed with several key principles in mind. First and foremost, this portfolio does not hold any futures-based commodity ETPs given the numerous drawbacks associated with such instruments. Many popular commodity products invest in futures contracts, allowing for exposure to resources without taking physical possession. While this approach may appeal to some, we believe it is susceptible to serious nuances, such as contango, which can negatively impact bottom line returns [see How Contango Impacts ETFs]. The other guiding principle behind this portfolio is its commodity-centric investment strategy. We have built this portfolio with a focus on commodities given the broad appeal and increasing popularity of this asset class; commodities can serve as diversifying agents, while also potentially helping to improve your portfolio’s risk-adjusted returns over the long haul [see Commodity ETF Investing: Five Factors To Consider].
The Futures Free Commodity ETFdb Portfolio offers well diversified, tangential exposure to all of the major commodities by investing in the stocks of commodity-producing firms. This approach is appealing for the simple reason that commodity producers are actual businesses that have a stream of cash flows and dividends associated with them, while commodity futures do not, making them far more difficult to value [see our Special Report: In Search Of The Best Commodity ETF]. Commodity producers tend to have fairly fixed overhead costs, and thus when the market price for their goods increases, their profitability improves as well. Investors should keep in mind that while commodity producers may bear a strong correlation with broad equity markets, potentially diminishing some of the diversification benefits associated with this asset class [see Commodity ETF With Asian Twist On Tap]. Another distinguishing feature of this portfolio is that it rounds out exposure to less popular corners of the commodity market, including allocations to rare earth/strategic metal mining companies. This portfolio also lacks traditional fixed income exposure; instead we have opted for a unique commodity-centric currency ETF that bears bond-like volatility.
The complete Futures Free Commodity ETFdb Portfolio is available to ETFdb Pro members or with a free 7-day trial to ETFdb Pro. Also check out our new Euro Free Europe Portfolio, as well as our Simple (But Effective) Safe Haven ETFdb Portfolio.
Also included with the ETFdb Pro subscription are more than 25 all-ETF model portfolios, including both retirement-focused and more tactical themed strategies. [To see all that is included, a free sample of the Emerging & Frontier Markets ETFdb Portfolio is available to all ETFdb readers]