As the broad markets are approaching their all-time highs,
investors are gaining confidence over the riskier asset classes.
As such, equities and equity
are showing heavy inflows this year on the heels of improving
global economic conditions (read:
3 ETFs Beating the S&P 500
In this backdrop, commodities like gold, agriculture and
industrial metals have experienced some weakness due to a lack of
investor interest and a strong dollar. The fears of a deepening
euro zone crisis of late has also taken a toll on these
commodities, hurting demand for raw materials, further adding to
However, despite the overall negative sentiment, a couple of
commodity ETFs have impressed with their performances so far this
year. Interestingly, these top performers have been spread out
among various commodity groups and could act as better plays in
the current market.
This suggests that there have been winners in every corner of
the space, implying that investors who have been burned by
broader-based commodity funds this year may want to consider
looking at any of the following commodity ETFs that we have
highlighted below (see more ETFs in the
Cotton, the only soft commodity on the list, could be a strong
performer this year thanks to strong demand in China and rising
global fiber consumption. In addition, cotton plantings are
expected to decline 27% this year, touching the lowest level
since 1983, according to the projection led by the National
Cotton Council (read:
Invest Like Morgan Stanley with These 5 Commodity
Investors seeking to play this rally in cotton prices could
iPath Dow Jones-UBS Cotton Subindex Total Return ETN
an intriguing option in the space. Launched in June 2008, the
note follows the Dow Jones-UBS Cotton Subindex Total Return,
which delivers returns through an unleveraged investment in the
futures contracts on cotton.
The product has failed to attract investors with just $46.3
million in assets and average daily volume of roughly 26,000
shares. This ensures a modest additional cost to investors in the
form of a wide bid/ask spread beyond annual fees of 75 bps a
year. The note added about 14.59% year-to-date.
Within the energy space, gasoline seems to have move higher on
solid demand and disruptions in gasoline supply. Further, an
improving job market and recovering global economic fundamentals
also support the bullish trend for gasoline prices.
Investors looking to make a concentrated play on the gasoline
segment of the energy market could choose
United States Gasoline Fund
. The ETF allows investors to directly make a play on the
commodity of RBOB gasoline and provides a vehicle to hedge
gasoline movements (read:
Pump Profits with This Gasoline ETF
The fund tracks the changes in percentage terms of its units'
net asset value to reflect the changes in percentage terms of the
price of gasoline. This is measured by the changes in the price
of the futures contract on unleaded gasoline traded on NYMEX that
is the near month to expire, except when the near month is within
two weeks of expiration. In such a case, the next month's
contract will be used instead.
The ETF is less liquid with daily trading volume of about
31,000, suggesting a wider bid/ask spread. As such, investors
have to pay extra beyond the annual fee of 60 bps in fees per
year. The fund has managed assets of $58.3 million and gained
3.13% so far in the year.
In the precious metal space, palladium could be considered an
extremely lucrative investment avenue given its growing demand
and decreasing supply throughout the year.
An improving auto industry and growing consumption of
palladium in cell phones, computers and jewelry should provide a
nice boost to the white metal's demand. On the other hand, supply
of palladium is going through certain disruptions due to the
labor dispute in South Africa, production cuts at unprofitable
mines and diminishing stockpiles in Russia.
With the global demand for palladium and the auto
industry expected to remain robust, and supply at an all-time
low, the price of the metal seems likely to go up going forward
Palladium ETFs to Rally in 2013?
Investors looking to take advantage of this possible price
rise should focus on the only pure play
ETF Securities Physical Palladium Shares (
in the space. Launched in Jan 2010, the fund seeks to match the
spot price of palladium, net of fees and expenses and own
palladium bullion in plate or ingots to back the shares.
With total assets of $582.2 million, PALL tracks almost 100%
the physical price of palladium bullion subject to LPPM rules for
Good Delivery, and kept in Zurich or London under the custody of
The ETF is relatively pricey though, charging investors 60 bps
in annual fees. Additionally, it has a wide bid/ask spread, which
increases the total cost for this fund thanks to the average
daily volume of 75,000 shares. The fund is up 7.86% year-to-date
and has a Zacks ETF Rank of 2 or 'Buy', suggesting that the
product is expected to continue its bull run over the next
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
IPATH-DJ-A COTN (BAL): ETF Research Reports
ETFS-PALLADIUM (PALL): ETF Research Reports
US GAS FUND LP (UGA): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report