With commodities funds still off recent highs, now is an ideal time to get into the asset class.
The Invesco Agriculture Commodity Strategy No K-1 ETF (PDBA ) offers actively managed exposure to agricultural commodities – all while bypassing the need for a K-1 tax form, making it an appealing offering for investors.
The fund can avoid issuing a Schedule K-1 and instead issue a 1099 tax form due to its structure as a ‘40 Act fund. A ‘40 Act fund does not invest directly in physical commodities, commodities futures, or commodities-linked securities but instead goes through its wholly owned and operated subsidiary under Cayman Islands law.
The difference in tax structures separated PDBA from the better-known Invesco DB Agriculture Fund (DBA ), which is structured as a 1933 Act Commodity Pool and issues a K-1. Incepted in 2007, DBA has $1.4 billion in assets under management.
PDBA was listed on August 24 and has garnered $15 million in assets under management as of October 28, according to VettaFi.
PDBA seeks long-term capital appreciation by investing indirectly through a subsidiary in commodities futures, collaterals such as cash, and high-quality securities linked economically to the agriculture industry. Through the futures, the fund will have exposure to 11 different grains, soft commodities, and livestock.
While actively managed, the fund seeks to outperform the DBIQ Diversified Agriculture Index Excess Return, an index comprising the most highly traded agricultural commodities globally, which include corn, wheat, Kansas City wheat, soybeans, sugar, cocoa, coffee, cotton, live cattle, feeder cattle, and lean hogs, according to the firm.
A benefit of active management is the ability of the portfolio manager to respond to changes in the commodities markets and the commodity forward curves. PDBA will largely be positioned with holdings and weights that reflect its benchmark, but it may not hold them in the same proportions or have all of the holdings that the benchmark does at any given time, according to the firm.
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