Though broad commodities have seen a strong reversal in their
trends bouncing back from the lows last month, these again fell to
the negative territory over the past week.
Despite the encouraging data from China and Europe, commodities
have shown a sharp fall after the Syria tension eased. Obama put
the strike on hold after Syria accepted Russia's proposal of
surrendering its chemical weapons to international control for
their ultimate destruction (read:
Safe Haven ETFs Slide as Syrian Tensions Cool
Additionally, growing worries about the U.S. Fed scaling down its
monetary stimulus anytime soon (decision expected on September
18th) are weighing largely on the prices, in particular, of
Given the bearish fundamentals, Goldman Sachs (
), lowered its expectation for commodity returns. According to
, an analyst at GS, the broad commodity markets - as represented by
the S&P GSCI Enhanced Commodity Index - will fall 2% over the
next 12 months.
In fact, the analyst calls for a 15% decline in precious metals, 7%
in agricultural products and 1% in energy while the lone winner is
expected to be industrial metals with a 2% gain over the next 52
all the Inverse Commodities ETFs here
The firm predicts gold prices to decline in 2014 on fast-improving
U.S. economic growth conditions and less accommodative monetary
policy. On the other hand, it expects demand in China, the major
driver of industrial metals, to continue growing in the coming
Investors seeking to ride on Goldman's views on commodities can
choose from a wide variety of products, including ETFs and ETNs.
Below, we have highlighted three ETFs which we think could be well
positioned if Goldman Sachs' commodity predictions come true in the
PowerShares DB Commodity Short ETN (
Investors looking to play the bearish Goldman view in the broad
commodity space could find this inverse ETN a solid pick. The
product seeks to provide inverse (opposite) return of the
performance of the Deutsche Bank Liquid Commodity Index through an
unleveraged investment in the futures contracts plus the rate of
interest on T-Bills.
In total, the product holds six different commodities in its basket
with heavy weight going to the energy (59%) space, followed by
agriculture (20%), industrial metals (12%) and precious metals
(9%). The ETN has been able to manage $5.8 million in its asset
base while charging 75 bps a year from investors (read:
3 Top Performing Energy ETFs in Focus Now
The product lost nearly 20.5% so far this year but is expected to
generate returns of 3.1% over the next 12 months if the Goldman
prediction comes true, though overall return for the ETN may
be slightly offset by the positive returns for industrial metals.
PowerShares DB Gold Short ETN (
Investors playing on Goldman's prediction could also focus purely
on gold bullion with PowerShares' inverse DGZ, as precious metal
will be a weak performer over the next 12 months.
The ETN tracks the inverse performance of the DBIQ Optimum Yield
Gold Index Excess Return through a single gold futures contract
plus the interest income from U.S. Treasury bills. The product has
an opposite relation to the movement of gold prices and thus
creates a short position in the underlying index (read:
4 Ways to Short Gold with ETFs
The note has managed assets of $27.1 million so far in the year
while charging 0.75% in expense ratio. DGZ has added over 18%
PowerShares DB Base Metals Fund (
Since industrial metals are the only commodities that are expected
be profitable with 2% gain according to Goldman, investors could
find DBB an intriguing pick. The ETF 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 metal commodities in the world.
The product holds three commodities - aluminum, copper and zinc -
in almost equal weight. The fund has amassed $263.2 million in its
asset base while charging 78 bps in annual fees (see more in the
The ETF delivered negative returns this year, losing over 14% so
far, but this could turn around in the weeks ahead. We are also
bullish on industrial metals over the next one year, assigning this
ETF a Zacks ETF Rank of 2 or 'Buy' rating.
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PWRSH-DB B METL (DBB): ETF Research Reports
PWRSH-DB CM SH (DDP): ETF Research Reports
DB-GOLD SHORT (DGZ): ETF Research Reports
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