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ETF Specialist

PowerShares Commodity ETF Remains a Top Choice

Although commodities have struggled recently, this ETF is a good choice for investors optimistic about the sector.

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Commodities have had a rough start in 2013, remaining stagnant as equities experienced a strong rally. A weak growth outlook in Europe, the anticipation of slowing infrastructure-related spending in China, and excess supply were behind the lackluster performance. In the first two months of the year, investors pulled assets out of the large, broad commodity ETFs as prices remained stationary or declined, but  PowerShares DB Commodity Index Tracking (DBC) bucked the trend and took in more than $300 million in new assets. Unlike most sector ETFs, which are relatively similar to each other in construction, commodity fund methodology and strategies can vary widely. Investors continue to be drawn to DBC for its diversification and dynamic rolling, which have helped it produce the most consistent risk-adjusted return of its peer group. DBC is a solid choice for investors who think now may be a good time to add some commodities exposure.

DBC provides exposure to 14 commodities from four sectors: energy, agriculture, industrial metals, and precious metals. Many commodity funds weigh constituents by economic importance, resulting in a heavy energy overweighting, but DBC is well-diversified across commodity sectors by mimicking open interest, making it a true broad-basket commodity fund. In addition, energy prices are relatively more volatile than other commodity products, so DBC is slightly less volatile than commodity funds with a large energy exposure.

Abby Woodham does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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