iShares, the world's largest provider of
, is fast approaching 300 total funds in the U.S. market. This is
largely thanks to the firm's solid product development pace in
the second and third quarters, as the company has launched a
series of ETFs targeting equity-factors, as well as corporate
The latest addition from iShares is in the commodity world
Dow Jones UBS Roll Select Commodity ETF (CMDT)
. This is actually the first commodity-focused ETF for iShares
since 2006, so undoubtedly expectations will be high for this
product, as the company hasn't really shown much interest in
commodities as of late (see
Inside the New Quality ETF from iShares
It is also worth noting that this ETF looks to go beyond some
of the original funds in the commodity space and will focus on
contango and backwardation in order to select contracts.
Hopefully, this process will assist in producing some
outperformance for this ETF, or at least help in keeping roll
costs at a minimum.
For investors interested by another iShares foray into the
commodity world, we have highlighted some of the key details
regarding this recent launch below:
CMDT in Focus
The ETF looks to track the Dow Jones-UBS Roll Select Commodity
Index Total Return, a benchmark that holds 22 commodity futures
contracts. The index seeks to minimize the cost of rolling each
contract, and looks to include commodities from each of the six
major groups; energy, grains, industrial metals, precious metals,
softs, and livestock (read
2 Commodity ETFs Offering Investors Sweet
The fund looks to minimize rolling costs by focusing on
futures contracts that have the least amount of contango or the
most backwardation. This is done by selecting contracts based on
observed contango and backwardation levels that are within 273
calendar days until expiration, and then choosing the most
As a refresher, contracts with backwardation are priced lower
than those with nearer delivery months, while those with contango
are priced higher than those with nearer delivery months. So when
contango is seen, and investors roll from one contract to the
next, losses can accumulate making it difficult to see solid
In terms of commodity sector weights for the index, energy
takes the top spot at nearly 40% of the total, followed by grains
(20.5%), industrial metals (16.1%), and precious metals (12.2%).
Softs and livestock, (respectively at 8.2% and 5.5%) round out
the rest of the portfolio, suggesting a heavy concentration in
For individual holdings, natural gas takes the top spot at
roughly 13.2% of the portfolio, followed by crude oil at 10.8%.
Rounding out the top four are gold (9.4%) and copper (6.7%),
while Brent crude, corn and soybeans comprise the rest of the top
seven (also see the
list of Top ETFs
For this exposure, the ETF charges investors 75 basis points
in fees, putting it just below the average for commodity ETF
How does it fit in a portfolio?
This product could be a good choice for investors seeking
broad commodity exposure across all six of the major sectors. It
may be an especially solid pick for investors who desire some
level of contango fighting exposure in their commodity
portfolios, as this may lead to outperformance when compared to
some 'traditional' products.
This fund may not be a good pick for those that are looking
for very spread out exposure across the various commodities, as
energy and grains make up a huge chunk of assets, while
individual commodities receive very large weights as well.
Additionally, due to competition and since the fund just
launched, trading volumes might be rather low to begin with for
this commodity ETF, so bid ask spreads might be a bit wide.
For investors seeking other broad commodity ETFs, there are
plenty on the market. Broad competitors seem likely to include
from PowerShares and
from iShares, both of which have more than one billion in assets
However, in terms of contango fighting products, investors
from United States Commodity Funds. This product, which has half
a billion in assets, also looks to avoid contango issues, though
it does so by only selecting commodities that have the most
backwardation, or at least the lowest levels of contango (see
Is USCI The Best Commodity ETF?
This can result in a very concentrated portfolio, as
agricultural commodities make up over two-fifths of the assets,
followed by a 30% allocation to energy. Plus, only 14 commodities
are included in the ETF at any one time.
Given this, and the fund's much higher expense ratio, CMDT
could find a way to accumulate some assets in the space. The new
iShares fund will have to show some outperformance above and
beyond USCI first though, as the commodity ETF world is rife with
competition and investors are certainly not starved for choice in
this corner of the market.
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PWRSH-DB COMDTY (DBC): ETF Research Reports
ISHARS-SP G-CMD (GSG): ETF Research Reports
US-COMMODITY IF (USCI): ETF Research Reports
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