So there’s a new Exchange-Traded Fund that tracks commodities. In this case, oil, aluminum, gold, corn and wheat. It seems like a good way for ordinary investors to get into commodities without dealing with futures contracts and such.
So, should I invest?
Oil prices are near record levels, while precious metals such as gold and silver are touching multi-year highs. Still, commodities bulls say growth in emerging markets such as China and India is among the long-term drivers of demand.
Even though prices are high, some people are saying it’s time to buy. My first instinct is to wait until prices have dipped a bit. There seems to be too much hype at the moment. The ETF seems like a good way to get into the market once it’s time.
The fund mentioned in the article is the Deutsche Bank Commodity Index Tracking Fund (DBC). There are some fees to consider:
Not including broker commissions, the Deutsche Bank ETF has an expense ratio of 1.5%, which includes a 0.95% management fee, according to the prospectus. However, the expense ratio is expected to be offset by the yield from the fixed-income portion of the portfolio.
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{ 3 comments… read them below or add one }
“The last act of any mania is always played out in the mines.” First an equity bubble, then a real estate bubble, and finally a “security-of-hard-assets” commodities bubble. I have to stick with the old wisdom here: the worst reason to buy anything is because the price is going up. Usually when I hear the bulls or pundits say something like “It’s gone up a lot, but still has a lot of room left to run”, it’s my cue to head for the door. Also, and this is just ancedotal, but it also seems to me that by the time someone gets around to making an ETF for a fad, the fad is almost over.
I bought shares in DBC. I wanted to invest in Gold, but I felt DBC was a better way to go because of the diversity in commodities.
When commodities bulls say:
“growth in emerging markets such as China and India is among the long-term drivers of demand [in commodities]”
they are generally refering to commoditites that are required for manufacturing, such as metals, fuels etc. In reference to this ETF, only Oil and Alumninium fall into that category.
Oil is probably artificially high because of instability in the middle east, which leaves aluminium as being the only component of this fund which is likely to see growth driven by this cause. As such it’s probably not ideal for someone looking to invest based on that rationale. Something linked to copper, nickel, steel, coal and similar is probably more appropriate, in my opinion.