Commodities have shown extreme weakness this year while many
other sectors have held up quite well. However, recent trends in
the space have been encouraging, as most commodities have
rebounded from their lows or are even moving higher.
This is especially true with the industrial metals that have
attracted investor interest in the past couple of weeks, leading
to huge inflows. China, the major driver of industrial metals, is
showing signs of stabilizing with
strong trade data
leading many to feel more bullish on the space.
Improving demand from China, Euro zone escaping recession,
tight supply conditions, and a weak dollar of late are adding to
the bullish fundamentals for the metals (read:
Copper ETFs Surge on Solid China Trade Data
Further, the increased chances of the Fed curtailing stimulus
have led to uncertainty in the market. Investors are thinking
that the equity markets have reached the highest level and could
slump, or stay range bound, from here. As such, they are moving
to commodities, which look cheaper at current levels.
Given the bullish trend at present, investors may want to
consider cycling into the industrial metal space in order to
obtain a nice momentum play as we move ahead in the final part of
While looking at individual metals is certainly an option,
focus on top ranked broad industrial metal ETFs could be a less
risky way of tapping the same broad trends (see more ETFs in the
Top Ranked Industrial Metal ETFs in Focus
We have found a number of ETFs or ETNs that have the Zacks ETF
Rank of 2 or 'Buy' rating in the industrial metal space and are
thus expected to outperform in the months to come (read: all the
While all these top ranked products are likely to outperform,
the following three funds could be good choices to tap into the
space. This trio has enjoyed strong momentum over the past few
weeks, and has potentially superior weighting methodologies or
focuses which could allow them to continue leading the industrial
metal space in the months ahead too.
PowerShares DB Base Metals Fund (
This product tracks the DBIQ Optimum Yield Industrial Metals
Index Excess Return, which is a rules-based index consisting of
futures contracts on some of the most heavily traded base metals
commodities in the world.
The fund holds three commodities - aluminum, copper, and zinc
- in equal weights. The ETF has amassed $273.9 million in its
asset base and trades in average daily volume of more than
230,000 shares. This would probably ensure slight or no
additional cost beyond the expense ratio of 0.78%.
Though DBB lost about 10% in the year-to-date time frame, it
added over 6% so far this month, suggesting a modest turnaround
may be at hand in this product (read:
2 Commodity ETFs Offering Investors Sweet
ETRACS CMCI Industrial Metals Total Return ETN
This ETN provides exposure to the portfolio of commodity
futures through a single investment by tracking the UBS Bloomberg
CMCI Industrial Metals Index Total Return. The benchmark seeks to
deliver returns from a basket of six futures contracts
representing the industrial metals sector. The commodity futures
contracts are diversified across five constant maturities ranging
from three months to three years out.
In terms of holdings, big chunks of the assets are tied to
copper and high grade copper, as these two account for 46% of the
assets. Aluminum (30%), zinc (10%), nickel (10%) and lead (5%)
round out the rest of the portfolio, meaning exposure is
reasonably well spread out.
The product is less popular and illiquid with AUM of less than
$5 million and average daily volume of less than 9,000 shares.
The ETN charges 65 bps in fees per year from investors and gained
over 7% so far in the month. Still, the note is down 8.5%
year-to-date so the product has a ways to go to get back to
breakeven for 2013.
iPath Dow Jones UBS Industrial Metals Sub Index Total
Return ETN (
This ETN follows the Dow Jones-UBS Industrial Metals Subindex
Total Return, which delivers returns through an unleveraged
investment in the futures contracts on four industrial metal
commodities. The future contracts for aluminum, nickel and zinc
are traded in the LME while copper future contract is traded on
The note has a slight tilt towards copper that makes up 42% of
assets. Aluminum, nickel and zinc account for 35%, 13%, and 10%
share, respectively. The ETN has been able to manage assets worth
$22.9 million while volume is light. It also has a steep expense
ratio of 75 bps.
Though the note lost over 12.6% year-to-date, it added about
7% this month suggesting it has been a strong momentum play in
the commodity world (read:
5 Silver ETFs Surging on Commodity Strength
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 >>
PWRSH-DB B METL (DBB): ETF Research Reports
IPATH-DJ-A I MT (JJM): ETF Research Reports
E-TRC UBC I MIL (UBM): 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