Despite a terrible start to 2016, commodities have rebounded strongly and are on track to end their five-year bear market. In fact, commodities are outperforming equities for the first time in five years. This is especially true as PowerShares DB Commodity Index Tracking Fund (DBC - Free Report) , which tracks a broad basket of the 14 most heavily traded commodity futures contracts, has risen 18.2% in the year-to-date time frame compared to gains of 13.8% for DIA and 10.1% for (SPY - Free Report) (read: Can Commodity ETFs Break a Five-Year Jinx?).
Recovering macro fundamentals, tight supply conditions, rising global demand and delay in rate hike boosted prices of a wide range of commodities including oil, sugar, gold and tin. Additionally, improving conditions in China, the world’s largest consumer of raw materials, as well as recovering oil prices added to the strength. As a result, DBC has pumped in $168.6 million this year after witnessing huge outflows of $1 billion last year, as per ETF.com.
In particular, industrial metals led the way higher despite the strength in U.S. dollar and the prospect of rate hike in the second half. This is because strong Chinese demand from infrastructure and construction projects, and Donald Trump’s promise of increased infrastructure spending in the US 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 like lead, zinc, tin, and nickel higher (see: all the Broad Commodity ETFs here).
Precious metals like gold and silver, which were the star performers in the first half, became the victim of Trump’s pro-growth economic policy and Fed’s aggressive rate hike path. On the energy front, oil price has shown a dramatic turn climbing to near $54 per barrel currently from the 12-year low of $27 hit in mid-February. The jump was mainly brought in by the historic Organization of the Petroleum Exporting Countries (OPEC) output cut deal that would likely bring back balance in the oil market.
Given this, we have highlighted six top performing ETFs that have delivered outstanding returns this year. Any of these could be excellent plays for investors seeking to ride the current bullish trend going into the New Year.
iPath Bloomberg Tin Subindex Total Return ETN (JJT - Free Report) – Up 48.5%
The product follows the Bloomberg Tin Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on tin. The ETN has been able to manage $3.3 million in AUM and trades in moderate volume of roughly 1,000 shares per day. Expense ratio comes in at 0.75%. JJT has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: 7 ETF Areas to Hog the Limelight in 2017).
United States Diesel-Heating Oil Fund – Up 35.2%
This ETF tracks the movement of heating oil prices. It is unpopular and illiquid in the oil space with AUM of 6.7 million and average daily volume of roughly 6,000 shares. The ETF has 0.75% in expense ratio.
iPath Bloomberg Lead Subindex Total Return ETN (LD - Free Report) – Up 33.5%
This note tracks the Bloomberg Lead Subindex Total Return, which delivers returns through an unleveraged investment in the futures contracts on lead. It has amassed $1.1 million in its asset base while trading in volume of under 1,000 shares a day on average. LD charges 70 bps in fees per year and has a Zacks ETF Rank of 3 with a High risk outlook.
iPath Seasonal Natural Gas ETN – Up 31%
This ETN provides exposure to the Barclays Natural Gas Seasonal TR Index, which comprises a single natural gas futures contract, except during the roll period when the Index may comprise two futures contracts. The Index consists of a single contract that expires in December and rolls annually. The product has $0.7 million in AUM and trades in an average daily volume of under 1,000 shares. It has an expense ratio of 0.75%.
United States Brent Oil Fund (BNO - Free Report) – Up 28.6%
BNO provides direct exposure to the spot price of Brent crude oil on a daily basis through futures contracts. It has amassed $116.2 million in its asset base and trades in solid volume of more than 151,000 shares a day. The ETF charges 90 bps in annual fees and expenses (read: How to Bet on Oil with Leveraged ETFs).
iPath Pure Beta Sugar ETN – Up 27.7%
This note seeks to match the performance of the Barclays Sugar Pure Beta Total Return Index. Unlike many commodity indexes, this product can roll into one a number of futures contracts with varying expiration dates, as selected by using the Barclays Pure Beta Series 2 Methodology. This approach might result in less contango, which could prove beneficial, as shifting from month to month in contracts can eat away returns in an unfavorable market situation. The note is illiquid with a paltry volume of about 1,000 shares and unpopular with AUM of just $1.3 million. Expense ratio comes in at 0.75%. SGAR has a Zacks ETF rank of 5 or ‘Strong Sell’ rating with a High risk outlook.
The recent trends have been encouraging for commodity ETFs, though many of them have an unfavorable Zacks Rank. Investors could consider these for a near-term play on commodities that are enjoying a huge run-up in their prices.
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