Whether you are looking to add a single commodity to your portfolio, or you’re wanting to cast a wider net over the entire industrial metals space, the continually expanding ETF industry lets you do it with ease. With one or more of these 11 exchange-traded funds you can fine-tune your exposure to industrial commodities such as aluminum, copper, zinc, nickel, cobalt, tin, lead and steel. Each ETF offers unique allocations to the different metals, as well as varying structures, leveraging, costs (expense ratios) and directional bias [see Free Member Report: How To Pick The Right ETF Every Time].
Below is a table highlighting each of these products, comparing the structure, expense ratio and industrial metal allocations (data as of March 3, 2013). It is important to note that the underlying index of the United States Metals Index Fund (USMI) is dynamic; therefore, the weightings of the 10 commodities held may change each month based on the index methodology.
|Ticker||ETF||Structure||Expense Ratio||Largest Allocation|
|DBB||DB Base Metals Fund||Commodity Pool||0.78%||Roughly 33.33% in each – Aluminum, Copper and Zinc|
|RJZ||Rogers International Commodity Metal ETN||ETN||0.75%||18.957% in each – Aluminum and Copper|
|JJM||DJ-UBS Industrial Metals Total Return Sub-Index ETN||ETN||0.75%||42.6% – Copper|
|BOM||DB Base Metals Double Short ETN||ETN||0.75%||Roughly 33.33% in each – Aluminum, Copper and Zinc|
|BDD||DB Base Metals Double Long ETN||ETN||0.75%||Roughly 33.33% in each – Aluminum, Copper and Zinc|
|UBM||E-TRACS CMCI Industrial Metals Total Return ETN||ETN||0.65%||35.16% – Copper|
|BOS||DB Base Metals Short ETN||ETN||0.75%||Roughly 33.33% in each – Aluminum, Copper and Zinc|
|USMI||United States Metals Index Fund||Commodity Pool||0.70%||18% in each – Gold and Silver (changes monthly*)|
|HEVY||Pure Beta Industrials Metals ETN||ETN||0.75%||56.76% – Copper|
|BDG||DB Base Metals Long ETN||ETN||0.75%||Roughly 33.33% in each – Aluminum, Copper and Zinc|
|RGRI||Rogers Enhanced Industrial Metals ETN||ETN||0.95%||30.7% – Aluminum and 30.4% – Copper|
Here is a closer look at the 11 broad industrial metals ETFs:
- DB Base Metals Fund (DBB, A): This is the most liquid fund of the group, with a daily trading volume averaging close to 300,000 shares per day. It tracks the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals Excess Return, which is simply a rule-based index that invests in industrial metals future contracts. The fund divides its holdings equally between aluminum, copper-grade A and zinc.
- Rogers International Commodity Metal ETN (RJZ, B+): This exchange-traded note (ETN) seeks to replicate the price movements, net of expenses, of the Rogers International Commodity Index-Total Returns. The index is comprised of futures contracts in 10 metals, making it one of the most diversified industrial metal exchange-traded products. It is also rated second for liquidity in this group of ETFs with average volume of over 23,000 shares per day [see Mining Boom ETFdb Portfolio].
- DJ-UBS Industrial Metals Total Return Sub-Index ETN (JJM, B+): This note provides significant exposure to copper—more than 40% of current holdings are in this metal—as well as aluminum, nickel and zinc. It tracks the Dow Jones-UBS Industrial Metals Total Return Sub-Index.
- DB Base Metals Double Short ETN (BOM, A-): This note moves 200% in the opposite direction of the daily price movements of the Deutsche Bank Liquid Commodity Index– Optimum Yield Industrial Metals Excess Return. If you expect the price of aluminum, zinc and copper to collectively decline you would be long this ETF; it appreciates if the metals decline in value.
- DB Base Metals Double Long ETN (BDD, B+): This note moves 200% of the daily price movements of the Deutsche Bank Liquid Commodity Index– Optimum Yield Industrial Metals Excess Return. In other words, this ETF provides traders with two-times leveraged exposure to aluminum, zinc and copper, which the underlying index is comprised of.
- E-TRACS CMCI Industrial Metals Total Return ETN (UBM, A+): With the cheapest expense ratio (0.65%), this fund seeks the price and performance yield, net of expenses, of the UBS Bloomberg CMCI Industrial Metals Total Return Index. This index invests in copper, zinc, aluminum, nickel and lead futures contracts, with maturities varying from three months to three years [see 101 ETF Lessons Every Financial Advisor Should Learn].
- DB Base Metals Short ETN (BOS, B-): BOS lets traders and investors simulate an unleveraged short position in the Deutsche Bank Liquid Commodity Index-Optimum Yield Industrial Metals, which tracks aluminum, copper and zinc.
- United States Metals Index Fund (USMI, n/a): This is the least actively traded of the group, averaging just over 600 shares per day. The underlying index the fund tracks, SummerHaven Metals Index Total Return, is a dynamic index where the weights of the 10 metals tracked change according to performance. The investor therefore accesses a commodity pool composed of aluminum, copper, nickel, zinc, lead, tin, platinum, sliver, palladium and gold. Performance of the fund will be affected by the underlying index’s methodology and not just metal prices.
- Pure Beta Industrials Metals ETN (HEVY, B-): This note tracks the Barclays Capital Commodity Index Industrial Metals Pure Beta TR. This index is also dynamic, as the basket of metals futures contracts may be rolled into varying expiration dates based on what they call the Barclays Capital Beta Series 2 Methodology.
- DB Base Metals Long ETN (BDG, C): This ETN has the second-lowest volume of the group, averaging just under 700 shares per day, and has limited assets under management at $1.5 million. The note tracks the Deutsche Bank Liquid Commodity index – Optimum Yield Industrial Metals Excess Return. The weighting of the index is equally divided between aluminum, copper and zinc.
- Rogers Enhanced Industrial Metals ETN (RGRI, n/a): This note has the highest expense ratio of the group at 0.95% and tracks the RICI Enhance Industrial Metals Total Return Index. The index is composed of a diverse group of commodity futures with varying weights and maturities [see 10 Questions About ETFs You've Been Too Afraid To Ask].
The Bottom Line
Industrial Metal ETFs are building blocks for creating the commodity exposure you seek within your portfolio, and are an easy way to access a certain or diverse group of industrial metals. Read the prospectus before investing, and be sure to check the performance history of the fund to make sure that it accurately tracks its underlying index over time. The different methodologies used to comprise the underlying index can have a significant effect on performance, in addition to industrial metal prices.
Disclosure: No positions at time of writing.