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After a stellar 2016, commodities underperformed in the first quarter of 2017. This is especially true against the backdrop of continued bullishness in the stock market and an increased appetite for riskier assets. These dampened the appeal for commodities across the globe.
Notably, PowerShares DB Commodity Index Tracking Fund (DBC - Free Report) , which tracks a broad basket of the 14 most heavily traded commodity futures contracts, shed nearly 4% in the first quarter compared with gains of 4.6% for DIA and 5.5% for SPY. While energy commodities were the major losers, industrials and precious metals like lead, palladium, aluminum, gold and silver bucked the trend on recovering global fundamentals, tight supply conditions, rising global demand and Fed’s dovish stance.
In particular, improving conditions in the world’s largest buyer of raw materials – China – led to strong demand from infrastructure and construction projects. Additionally, Donald Trump’s promise of increased infrastructure spending in the U.S. fueled the spike in metal prices. Notably, about half of the world’s demand for industrial metal comes from China. Further, supply shortfalls or capacity cuts are driving the prices for metals. Coming to precious metals, volatility, rising inflation and fears of political instability are acting as the key tailwinds (read: What Led China ETFs to Outperform in Q1 2017?).
In the agricultural sector, cotton was the biggest gainer thanks to shrinking inventories, growing Chinese demand for fiber and increasing U.S. exports to China.
Given this, we have highlighted five top-performing ETFs that delivered double-digit returns in the first quarter. Any of these could be excellent plays for investors seeking to ride out the current market trend:
This fund seeks to match the spot price of palladium, net of fees and expenses. With AUM of $2022 million, the ETF owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase Bank. It has an expense ratio of 0.60% and sees lower volume of about 36,000 shares a day. The product gained 17.2% in the first quarter and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: What's Driving Palladium ETF Rally?).
iPath Bloomberg Aluminum Subindex Total Return ETN
The product follows the Bloomberg Aluminum Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on aluminum. The ETN has been able to manage $2.7 million in AUM and trades in paltry volume of 1,000 shares per day. Expense ratio comes in at 0.75%. JJU added 15.9% in the first quarter and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.
The fund tracks the price of silver bullion measured in U.S. dollars, and kept in London under the custody of JPMorgan Chase Bank. It is the ultra-popular silver ETF with AUM of $6 billion and heavy volume of nearly 8.6 million shares a day. The product charges 50 bps in fees per year and gained 14.2% in the January–March period. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: Is Silver Poised for a Rally? ETFs in Focus).
This fund seeks to provide exposure to all the four precious metals in physically backed form. Gold takes the top spot at 57%, followed by 30% in silver while the rest is almost evenly split between platinum and palladium. The product is kept in London or Zurich under the custody of JPMorgan Chase Bank. It has amassed $304.6 million in its asset base while trades in moderate volume of about 43,000 shares per day. It charges 60 bps in annual fees and added 10.5% last quarter. GLTR has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all the Precious Metal ETFs here).
iPathPure Beta Cotton ETN
This ETN targets the cotton segment of the broad agricultural commodity market by tracking the Barclays Cotton Pure Beta Total Return Index. Unlike many commodity indices, this index offers roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology. The product has managed assets of $0.6 million and charges 75 bps in fees per year from investors. Average daily volume is paltry at 1,000 shares. The ETN was up 10.5% and has a Zacks ETF Rank of 4 with High risk outlook.
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5 Commodity ETFs That Bucked the Downtrend in Q1
After a stellar 2016, commodities underperformed in the first quarter of 2017. This is especially true against the backdrop of continued bullishness in the stock market and an increased appetite for riskier assets. These dampened the appeal for commodities across the globe.
Notably, PowerShares DB Commodity Index Tracking Fund (DBC - Free Report) , which tracks a broad basket of the 14 most heavily traded commodity futures contracts, shed nearly 4% in the first quarter compared with gains of 4.6% for DIA and 5.5% for SPY. While energy commodities were the major losers, industrials and precious metals like lead, palladium, aluminum, gold and silver bucked the trend on recovering global fundamentals, tight supply conditions, rising global demand and Fed’s dovish stance.
In particular, improving conditions in the world’s largest buyer of raw materials – China – led to strong demand from infrastructure and construction projects. Additionally, Donald Trump’s promise of increased infrastructure spending in the U.S. fueled the spike in metal prices. Notably, about half of the world’s demand for industrial metal comes from China. Further, supply shortfalls or capacity cuts are driving the prices for metals. Coming to precious metals, volatility, rising inflation and fears of political instability are acting as the key tailwinds (read: What Led China ETFs to Outperform in Q1 2017?).
In the agricultural sector, cotton was the biggest gainer thanks to shrinking inventories, growing Chinese demand for fiber and increasing U.S. exports to China.
Given this, we have highlighted five top-performing ETFs that delivered double-digit returns in the first quarter. Any of these could be excellent plays for investors seeking to ride out the current market trend:
ETFS Physical Palladium Shares (PALL - Free Report)
This fund seeks to match the spot price of palladium, net of fees and expenses. With AUM of $2022 million, the ETF owns palladium bullion in plate or ingots kept in Zurich or London under the custody of JPMorgan Chase Bank. It has an expense ratio of 0.60% and sees lower volume of about 36,000 shares a day. The product gained 17.2% in the first quarter and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: What's Driving Palladium ETF Rally?).
iPath Bloomberg Aluminum Subindex Total Return ETN
The product follows the Bloomberg Aluminum Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on aluminum. The ETN has been able to manage $2.7 million in AUM and trades in paltry volume of 1,000 shares per day. Expense ratio comes in at 0.75%. JJU added 15.9% in the first quarter and has a Zacks ETF Rank of 4 or ‘Sell’ rating with a High risk outlook.
iShares Silver Trust (SLV - Free Report)
The fund tracks the price of silver bullion measured in U.S. dollars, and kept in London under the custody of JPMorgan Chase Bank. It is the ultra-popular silver ETF with AUM of $6 billion and heavy volume of nearly 8.6 million shares a day. The product charges 50 bps in fees per year and gained 14.2% in the January–March period. It has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: Is Silver Poised for a Rally? ETFs in Focus).
ETFS Physical Precious Metals Basket Shares (GLTR - Free Report)
This fund seeks to provide exposure to all the four precious metals in physically backed form. Gold takes the top spot at 57%, followed by 30% in silver while the rest is almost evenly split between platinum and palladium. The product is kept in London or Zurich under the custody of JPMorgan Chase Bank. It has amassed $304.6 million in its asset base while trades in moderate volume of about 43,000 shares per day. It charges 60 bps in annual fees and added 10.5% last quarter. GLTR has a Zacks ETF Rank of 3 with a Medium risk outlook (see: all the Precious Metal ETFs here).
iPathPure Beta Cotton ETN
This ETN targets the cotton segment of the broad agricultural commodity market by tracking the Barclays Cotton Pure Beta Total Return Index. Unlike many commodity indices, this index offers roll into one of a number of futures contracts with varying expiration dates, as selected, using the Barclays Pure Beta Series 2 Methodology. The product has managed assets of $0.6 million and charges 75 bps in fees per year from investors. Average daily volume is paltry at 1,000 shares. The ETN was up 10.5% and has a Zacks ETF Rank of 4 with High risk outlook.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>