Stocks & Commodities V. 30:10 (52-53): Trading Ticket: Commodity/Leveraged ETFs
Product Description
Trading Ticket: Commodity/Leveraged ETFs
POWERSHARES DB COMMODITY INDEX TRADING (DBC)
This exchange traded fund (ETF) tracks changes in the level of the Deutsche Bank Liquid Commodity Index – Optimum Yield Diversified Excess Return, plus interest income from US Treasuries that the ETF holds. It invests in futures contracts on 14 of the heavily traded commodities. The commodities include light sweet crude oil, heating oil, RBOB gasoline, natural gas, Brent crude, gold, silver, aluminum, zinc, copper grade A, corn, wheat, soybeans, and sugar. The largest weightings are in light sweet crude oil, heating oil, Brent crude oil, and RBOB gasoline, which indicates that it has higher weighting in the energy sector. DBC is offered through Invesco Powershares:
• Launch date: February 3, 2006 • Expense ratio: 0.93% • Average spread: 0.04% • Tracking error: 0.26%
Trading strategies: Considering that DBC is diversified among the most heavily traded commodities, you get the diversity of the commodities markets, especially in the energy sector.
It is structured as a partnership that invests in futures contracts. It is marked to market at the end of each year, which means that every year you will be apportioned a pro rated share of gains or losses. In the event that there was a very strong gain in any year, you may end up with a pretty significant tax liability. Something else to keep in mind is that you will have to fill out a Form-K1 every year. If you are prepared for all this additional administrative work and you want the exposure to the commodities market, DBC may be an ETF to consider.
POWERSHARES DB COMMODITY INDEX TRADING (DBC)
This exchange traded fund (ETF) tracks changes in the level of the Deutsche Bank Liquid Commodity Index – Optimum Yield Diversified Excess Return, plus interest income from US Treasuries that the ETF holds. It invests in futures contracts on 14 of the heavily traded commodities. The commodities include light sweet crude oil, heating oil, RBOB gasoline, natural gas, Brent crude, gold, silver, aluminum, zinc, copper grade A, corn, wheat, soybeans, and sugar. The largest weightings are in light sweet crude oil, heating oil, Brent crude oil, and RBOB gasoline, which indicates that it has higher weighting in the energy sector. DBC is offered through Invesco Powershares:
• Launch date: February 3, 2006 • Expense ratio: 0.93% • Average spread: 0.04% • Tracking error: 0.26%
Trading strategies: Considering that DBC is diversified among the most heavily traded commodities, you get the diversity of the commodities markets, especially in the energy sector.
It is structured as a partnership that invests in futures contracts. It is marked to market at the end of each year, which means that every year you will be apportioned a pro rated share of gains or losses. In the event that there was a very strong gain in any year, you may end up with a pretty significant tax liability. Something else to keep in mind is that you will have to fill out a Form-K1 every year. If you are prepared for all this additional administrative work and you want the exposure to the commodities market, DBC may be an ETF to consider.
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