The global commodity markets have been witnessing surging prices for industrial and agricultural commodities. An expected inflationary environment in the United States and the rapid recovery of industrial activities are major drivers of the commodity price increases. With consumer spending on the rise, driven in-part by federal pandemic recovery benefits and an improving job market, along with rising capital investments amid the low interest rate environment, commodity prices have begun to spike.
The current oil price rally and potential governmental infrastructure spending should leave the commodity markets in contango over the coming months. The Federal Open Market Committee (FOMC) forecasts the United States’ real GDP will rise 6.5% this year, which should drive commodity prices to fresh highs.
While investing directly in commodities could be beneficial against this backdrop, we believe a less-risky way to ride the commodity rally could be investing in commodity ETFs, given their stakes in risk-free U.S. Treasuries. We think iShares GSCI Commodity Dynamic Roll Strategic ETF (COMT), Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC), and Invesco DB Commodity Index Tracking Fund (DBC) could deliver significant returns in the coming months.
iShares GSCI Commodity Dynamic Roll Strategic ETF (COMT)
COMT invests in a variety of commodities, including energy, metals, and agriculture and livestock, that are selected from the broader S&P GSCI investable commodity index. The ETF invests in commodity derivatives such as futures, swaps and options on futures, seeking to profit from spot-price fluctuations. With net assets under management of $558.29 million, COMT tracks the S&P GSCI Dynamic Roll (USD) Total Return Index.
A unique feature of this ETF is that it doesn’t require K-1 tax reporting because it depends on a wholly owned Cayman subsidiary to invest in commodity derivatives. Also, in order to hedge a proportion of its risk, COMT invests in U.S. Treasuries.
As of March 19, COMT’s major holdings included BCF Treasury Fund (XTSLA), Eversource Energy, Ionic Capital II Trust (INCIIA) and U.S. Treasury Bills. With a 30-day median bid/ask spread of 0.1%, the ETF is highly liquid. Furthermore, the ETF is trading at a 0.16% premium to its NAV. It has an expense ratio of 0.48%, which is lower than the category average 0.74%.
COMT has gained 39% over the past year, 21% over the past six months, and 13.5% year-to-date. It pays an annual dividend of $0.10, yielding 0.33% on its current price. Its four-year average dividend yield is 5.22%.
COMT has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system.
Check out the top-rated stocks in the Commodity ETFs industry here.
Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)
PDBC invests in derivatives and other financial instruments of 14 of the most heavily traded commodities worldwide in the energy, precious and industrial metals, and agricultural sectors. It is an actively managed ETF that seeks to minimize the risks in a contango commodity derivatives market and avoid negative roll yield. PDBC seeks to outperform benchmark DBIQ Optimum Yield Diversified Commodity Index Excess Return.
PDBC is currently trading at a 0.17% discount to its NAV, with a median bid-ask spread of 0.06% as of March 22. The ETF has a net expense ratio of 0.59%, which is lower than the category average 0.74%. 15.5% of PDBC’s total holdings cater to the energy sector; 5.4% of its total holdings comprise base metals futures, while 5.3% caters to agricultural derivatives. The ETF has significant exposure in U.S. Treasuries also, to mitigate commodity market risk.
PDBC has gained 52.4% over the past year, and 27.7% over the past six months. It has gained 14.4% year-to-date. The ETF has a four-year average dividend yield of 2.95%.
It’s no surprise that PDBC has an overall A rating , which equates to Strong Buy in our proprietary POWR Ratings system. It has an A for Trade Grade and Buy & Hold Grade, and B for Peer Grade. PDBC is ranked #2 in the same group.
Invesco DB Commodity Index Tracking Fund (DBC)
DBC is a passively managed ETF that seeks to replicate the returns of its benchmark DBIQ Optimum Yield Diversified Commodity Index Excess Return, together with interest income from money market instruments and U.S. Treasuries. The ETF has a median bid/ask spread of 0.06%, and is trading at a discount of 0.18% to the NAV.
DBC has an 0.88% expense ratio, which is slightly higher than the category average 0.74%. 59.6% of DBC’s net holdings are invested in the energy sector; 14.9% in the base metals sector; and 20.4% in the agricultural sector. It has a four-year average dividend yield of 0.8%. The ETF has gained 53.6% over the past year, 28.8% over the past six months, and 14.3% year-to-date.
DBC’s POWR Ratings are consistent with its growth outlook. It has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. It has an A for Trade Grade and Buy & Hold Grade, and B for Peer Grade. DBC is ranked #5 of 112 ETFs in the same group.
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COMT shares were trading at $29.43 per share on Tuesday afternoon, down $0.85 (-2.81%). Year-to-date, COMT has gained 10.35%, versus a 4.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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