Even as gold prices are rising on expectations of a Fed rate cut, investors may be better positioned in diversified commodity ETFs.
Broad-basket commodity ETFs can provide exposure to the asset class without placing significant bets on individual commodities. This may potentially enhance risk-adjusted returns and mitigate volatility.
Two commodity ETFs to consider include the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC ) and the Invesco DB Commodity Index Tracking Fund (DBC ).
PDBC
PDBC is the largest commodity ETF available to investors, according to ETF Database. The commodity ETF has $4.3 billion in assets under management as of September 6.
The fund is actively managed and provides exposure to the world’s most heavily traded commodities.
The fund’s largest commodity allocations as of August 30 are gasoline (13.14%), Brent crude (12.83%), WTI crude (12.69%), NY Harbor ULSD (11.90%), and gold (10.44%).
The fund also has exposure to copper, wheat, zinc, soybeans, aluminum, sugar, corn, natural gas, and silver.
DBC
DBC is the third-largest commodity ETF by assets under management, with $1.4 billion.
The fund tracks the DBIQ Optimum Yield Diversified Commodity Index. The commodity ETF’s underlying index provides exposure to 14 heavily traded commodities across the energy, precious metals, industrial metals, and agriculture sectors.
DBC’s has exposure to the same commodities as PDBC, with slightly different weights. As of August 30, DBC’s five largest exposures by weight include gasoline (12.60%), Brent crude (12.46%), WTI crude (12.29%), NY Harbor ULSD (11.73%), and gold (10.89%).
Differences Between the Commodity ETFs
An important difference between the two commodity ETFs is that DBC issues a schedule K-1. Thus, investors might prefer PDBC to get exposure to commodity futures without the tax hassle of a K-1.
The funds also have different costs. PDBC charges 59 basis points and DBC charges 87 basis points.
For more news, information, and analysis, visit the Innovative ETFs Channel.
