Powershares partners with Deutsche Bank to launch 7 new ETF’s
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On last Friday, January 5th, Powershares in partnership with Deutsche Bank launched the following 7 commodity based EFT’s:
DBA - PowerShares DB Agriculture Fund (25% S, 25% KW, 25% C & 25% SB)
DBB - PowerShares DB Base Metals (33% AL, 33% LZ & 33% HG)
DBE - PowerShares DB Energy (25% CL, 25% NG, 25% HO & 25% RBT)
DGL - PowerShares DB Gold * (100% GC)
DBO - PowerShares DB Oil Fund (100% CL)
DBP - PowerShares DB Precious Metals * (80% GC & 20% SI)
DBS - PowerShares DB Silver * (100% SI)
Finally, there is a easy, simple and efficient way for the average investor to invest in commodities outside of a mutual fund that tracks a diversified index. The problem that I’ve always had with an index of commodities is that it assumes that all commodities are correlated similar to equities, which they are not.
On Sept 1, ’07, I liquidated my clients’ position in PIMCO’s Commodity Real Return Fund (PCRAX) because I was concerned about the prospect of energy and base metals (The fund is down over 8% since I liquidated it – insert “pat-on-the-back” here). PCRAX has approximately 33% and 20% exposure to energy and base metals, respectively. However, by liquidating the fund, we lost our exposure to agricultural commodities of which I was and still am bullish on.
Which is why I’m very excited about the offerings from Powershares as they afford me the opportunity to invest my clients in a specific sector of the commodity space and minimize exposure to commodities that I’m not in favor of. For my clients, I’ll be adding the PowerShares DB Agriculture Fund (DBA) to your portfolio (I would have already executed this trade but since I believe in maintaining a fully invested portfolio, I do not have any cash in your portfolio and therefore I have to decide what to liquidate in order to free up cash to make the trades). I’m very bullish on the “grains” and I think this will provide you with substantial gains over the next 12-18 months. It’s time for the agriculture commodities to catch up with energy, base and precious metals.
The only regrettable aspect of this fund is that it doesn’t include Coffee. I think Coffee has the most appealing risk/return parameters of all the agricultural commodities.
* Important Note regarding the Precious Metals funds: There is a notable distinction between the the Powershares DB Gold and Silver funds and the other Gold and Silver ETF’s available to investors [iShares Silver Trust (SLV), the iShares Comex Gold Trust (IAU) and Streettracks Gold Shares (GLD)]. The Powershares ETF’s own futures contracts on gold and silver where as their predecessor’s own the physical asset.
This has multiple ramifications for the investor. By using futures to gain precious metal exposure, PowerShares frees up a large portion of the fund to be invested in low-risk treasuries that earn interest which should offset the cost of the fund. However, these funds will also be susceptible to roll yield which can be negative or positive depending on whether the commodity is trading in contango or backwardation. On the flip side, some investors may appreciate the security of knowing that their fund holds the physical commodity just in case our financial markets have a complete meltdown.
