Most economic activities came to a near halt last year due to COVID-19 pandemic-led restrictions and social distancing measures. With the global economy’s gradual recovery, commodity prices are surging this year, due primarily to rising demand from reopening industrial and construction sectors. Supply disruptions are also pushing up commodity prices.
President Biden’s proposed ‘Build Back Better’ infrastructure plan, if adopted, is expected to further boost demand for commodities. While it may be risky to bet on a particular commodity or stock to benefit from rising commodity prices, a less risky way could be to bet on commodity ETFs.
We think the Invesco DB Commodity Index Tracking Fund (DBC), VanEck Vectors Oil Services ETF (OIH), and Invesco DB Agriculture Fund (DBA) are all well-positioned to generate significant returns in the coming quarters. So, it could be worth adding these ETFs to one’s portfolio now.
Invesco DB Commodity Index Tracking Fund (DBC)
Launched by Invesco Ltd. (IVZ), DBC is an exchange traded fund that is managed by Invesco PowerShares Capital Management LLC. It invests in the commodity market and uses futures contracts to invest in commodities, including corn, wheat, soybeans, and sugar. The fund seeks to replicate the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return.
With $2.49 billion in AUM, DBC’s top holding is a mutual fund in which DBC has a 49.24% weighting, followed by United States Treasury Bills 0.0% 05-AUG-2021, with a 9.97% weighting, and United States Treasury Bills 0.0% 07-OCT-2021, with an 8.17% weighting. The fund has an 0.88% expense ratio versus the 0.74% category average.
DBC pays a $0.25 annual dividend. Its average four-year dividend yield stands 0.80%. DBC has gained 58.9% over the past year and 42.2% over the past nine months.
DBC’s POWR Ratings are consistent with its growth outlook. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grade for Buy & Hold, and Trade, and a B grade for Peer. Get all the DBC ratings here.
DBC is ranked #6 of 112 ETFs in the A-rated Commodity ETFs group.
VanEck Vectors Oil Services ETF (OIH)
Managed and launched by Van Eck Associates Corporation, OIH invests in the stocks of companies that operate across several sectors, including energy, energy equipment and services, oil and gas drilling, and oil and gas equipment and services. The fund seeks to track the performance of the MVIS US Listed Oil Services 25 Index.
Schlumberger NV (SLB) has a 22.02% weighting in the fund as its top holding, followed by Halliburton Company (HAL) at 13.73%, and Baker Hughes Company Class A (BKR) at 6.29%. The fund has $2.19 billion in AUM. Its 0.35% expense ratio compares well to the 0.48% category average.
OIH pays $1.89 annually in dividends to its investors, which equates to a 0.85% yield. average four-year dividend yield stands at 1.99%. Over the past year, the fund has gained 91.2%. It has returned 94.5% over the past nine months.
It’s no surprise that OIH has an overall A rating, which equates to Strong Buy in our proprietary rating system. It has an A grades for Trade and Buy & Hold.
Invesco DB Agriculture Fund (DBA)
DBA is an exchange-traded fund that was launched by IVZ and is managed by Invesco Capital Management LLC. It uses derivatives, such as exchange-traded futures contracts, to invest in agricultural commodities that include cocoa, coffee, cotton and lean hogs. The fund tracks the performance of the DBIQ Diversified Agriculture Index Excess Return.
DBA has $995.10 million in AUM. Its top holdings include mutual funds, with a 47.16% weighting in the fund, United States Treasury Bills 0.0% 05-AUG-2021 have a 12.14% weighting, and United States Treasury Bills 0.0% 07-OCT-2021 have a 9.71% weighting. The fund’s 0.94% expense ratio is lower than the 1.20% category average.
The fund pays a $0.26 annual dividend. Its average four-year dividend yield stands at 0.72%. It has gained 39.1% over the past year and generated 27.9% returns over the past nine months.
DBA’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our proprietary rating system. It also has an A grade for Trade and Buy & Hold.
DBA is ranked #13 in the Commodity ETFs group. In addition to this, one can access DBA’s Peer grade here.
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DBC shares were trading at $18.89 per share on Thursday morning, down $0.14 (-0.74%). Year-to-date, DBC has gained 28.50%, versus a 12.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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