The outbreak of COVID  pandemic led to widespread declines in global commodity prices. The pandemic severely impacted both the demand and supply sides of commodities, with the oil and metal markets being the most affected. However, almost all commodity prices recovered in the third quarter of 2020. Crude oil l prices are rallying, supported by sharp oil supply cuts by the OPEC+ group. Even metal prices have recovered rapidly in response to a faster-than-expected pick up in industrial activities. Commodity prices continued to surge in February, with energy commodities jumping 14.3% and non-energy commodities rising 2.5%.

One of the major reasons behind the bullish commodity market is growing optimism regarding the ability of  vaccines to contain the spread of the coronavirus. Also, China has re-emerged as the most important driver of commodity demand following a revival in economic activity there, including construction, automobiles and international trade. Moreover, significant growth in money supply, rock bottom interest rates and fiscal stimulus could eventually lead to more money flowing into the commodity markets.

Moving ahead, we expect the commodities prices to continue to move higher given the prospect of a weaker U.S. dollar. Hence, we believe commodity focused ETFs Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC), Invesco DB Commodity Index Tracking Fund (DBC) and iShares S&P GSCI Commodity-Indexed Trust (GSG) are decent investment options to ride this bull run.

Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC)

PDBC, which is managed by Invesco Capital Management, invests in the commodity markets directly through derivatives such as futures contracts, exchange-traded options, swaps and other commodity-related contracts. The fund invests primarily  in energy, precious metals, industrial metals, and agriculture commodities through its wholly owned Cayman Islands subsidiary. One attractive feature of PDBC is that it tries to avoid negative roll yield, a well-known problem of passive commodity funds that can erode returns substantially over time.

The fund benchmarks the performance of its portfolio against the DBIQ Optimum Yield Diversified Commodity Index Excess Return index and the DBIQ Optimum Yield Diversified Commodity Index Total Return. The ETF has 52.3% of its assets invested in  mutual funds, while zero-percent United States Treasury bills expiring June 10, 2021 and September 9, 2021, account for 13.18% and 11.3% of the fund’s weightings, respectively.

PDBC has  $4.03 billion in AUM and an expense ratio of 0.59%, compared to the category average of 0.74%. PDBC has gained 17.4% year-to-date and 33.3% over the past six months.

PDBC has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. PDBC also has an A for Trade Grade, Peer Grade and Buy & Hold Grade. In the B-rated 112-ETF Commodity ETFs Category, the ETF is ranked #2.

Invesco DB Commodity Index Tracking Fund (DBC)

DBC, which is managed by Invesco PowerShares Capital Management, is one of the largest and most popular options for investors looking to achieve broad-based commodity exposure. The fund uses futures contracts to invest in commodities such as  Light Sweet Crude Oil (WTI), Heating Oil, RBOB Gasoline, Natural Gas, Brent Crude, Gold, Silver, Aluminum, Zinc, Copper Grade A, Corn, Wheat, Soybeans, and Sugar.

The ETF seeks to replicate the performance of the DBIQ Optimum Yield Diversified Commodity Index Excess Return. The ETF has 48.04% of its assets invested in  mutual funds, while Zero-percent United States Treasury bills expiring on October 7, 2021 and September 9, 2021, account for 10.39% and 10.39% of the fund’s weightings, respectively. Invesco Treasury Collateral ETF (CLTL) accounts for 9.40% weighting in the fund.

DBC has  $1.56 billion in AUM and an expense ratio of 0.85%, compared to the category average of 0.74%. The fund pays $0.25 in dividends annually. DBC has gained 17.3% year-to-date and 34.6% over the past six months.

It’s no surprise that DBC has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. It also has an A for Trade Grade and Buy & Hold Grade, and a B for Peer Grade. It is ranked #5 in the same ETF group.

iShares S&P GSCI Commodity-Indexed Trust (GSG)

GSG, which is managed by BlackRock Fund Advisors, offers broad commodity exposure, with the underlying index tilted heavily towards energy resources. Crude oil, natural gas, and other energy commodities make up most of the fund’s exposure.

The ETF seeks to track the performance of the S&P GSCI Total Return Index. Zero-percent United States Treasury bills expiring on May 20, 2021; March 16, 2021; and March 18, 2021, account for 7.70%, 7.19% and 6.85% weights in the  fund’, respectively.

GSG has an  $1.14 billion in AUM and an expense ratio of 0.76%, compared to the category average of 0.74%. GSG has gained 17.8% year-to-date and 38.7% over the past six months.

GSG has an overall rating of A, which equates to Strong Buy in our POWR Ratings system. It also has an A for Trade Grade and Buy & Hold Grade, and a B for Peer Grade. In the same B-rated ETF category, it is ranked #6.

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PDBC shares were trading at $18.16 per share on Thursday afternoon, up $0.24 (+1.34%). Year-to-date, PDBC has gained 19.00%, versus a 5.24% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...

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