2013 has been a pretty rough year for commodities across the
board. A strong dollar, weakened demand from China, and a still
sluggish global economy have conspired to send natural resource
prices lower to begin the year.
However, some are remaining optimistic on the space thanks to
a decent recovery in the U.S., and some encouraging signs in a
few key corners of the market, like certain precious metals and a
few agricultural commodities. These natural resources are also
great portfolio diversifiers, something that is increasingly
important now that international markets are struggling and bonds
are slumping as well.
Given this, another look at commodity
may be warranted by investors as we push into the summer months.
Or if these funds do not strike you as good choices, a look to
some of the freshly launched ETNs from Credit Suisse could be an
interesting way to go instead (see
Is USCI the Best Commodity ETF?
New Commodity Products
These new ETNs from Credit Suisse look to give investors fresh
approaches to target the commodity world, focusing on different
ways to target the futures curve in order to generate
outperformance over traditional benchmarks. The approach may be
worth looking into, though many investors have stayed away from
ETNs by and large so far.
Still, for investors seeking a new play on commodities either
of these could be worth a closer inspection thanks to their
relatively novel methods for establishing exposure in the space.
So, if you are seeking a new commodity play, we have highlight
some of the key details below from these new products, either of
which could be interesting choices for commodity investors
seeking to get into the space on the dip:
Credit Suisse Commodity Rotation ETN: CSCR
This senior unsecured debt security is linked to the Credit
Suisse Commodity Backwardation Total Return Index. This benchmark
is along only index that follows a rules-based strategy to select
eight commodities from a basket of 24 eligible commodities (also
Tough Times Ahead in Commodity Currency ETFs?
Commodities are selected for inclusion based on observed
levels of backwardation and contango, as measured by one month,
and generally six month levels. Each month, eight of the 24
that have the highest backwardation or the lowest contango,
subject to maximums for sectors, are included in the
Each of the eight commodities receive a 12.5% weighting in the
product, following futures contracts spread over the 4, 5, and 6
month versions. At time of writing, the fact sheet suggested that
energy and agricultural commodities took up roughly 30% each,
while livestock and precious metals taking the rest and base
metals not receiving any allocation at this time.
With this process, the ETN looks to outperform traditional
benchmarks, as backwardation can indicate scarcity. Plus, a
commodity investment in a contangoed environment creates a bit of
a roll yield hurdle, so performance can be better by avoiding
this type of commodity contract (read
Most Surprising ETF Winner in this Slump?
Still, investors should note that the product has an elevated
cost of 85 basis points a year, while volume might be a bit
light. This could increase bid ask spreads, and push total costs
of this note even higher.
Credit Suisse Commodity Benchmark ETN: CSCB
For a different approach to the commodity market, investors
now have this ETN which is linked to the Credit Suisse Commodity
Benchmark Total Return Index. This looks to provide monthly
rebalanced, long-only exposure to commodities through rolling
futures contracts on 34 different products.
Commodities are included to reflect overall global commodity
exposure, so there is a bit of concentration in certain product
types. For example, energy commodities make up over half the
note, while agricultural and industrial metals each get double
digits, leaving roughly 7.5% for precious metals and 4% for
The uniqueness for this product rests in its use of a plethora
of futures contracts in order to obtain exposure. The index
invests in contracts that fall within the first three months of
the curve in equal number of contracts. This results in exposure
across multiple delivery periods and somewhere between 67 and 108
different contracts being included in the index at any one
This approach could reduce contango issues as well, while
limiting the damage-or benefit-from a single futures contract.
The technique is also probably unsuitable for an ETF, thanks to
all the contract buying and selling, making the ETN structure
ideal for this strategy (see
Inside the Managed Futures ETF
This note is also a bit cheaper than its counterpart, coming
in with an annual fee of 65 basis points a year. However, this
will likely suffer from low volume and a wide spread, at least
initially, so costs could be higher here as well.
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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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