3 Commodity ETFs Surging Higher - ETF News And Commentary
October 30 2013 - 12:00PM
Zacks
Most of the commodities
have performed terribly this year; but some of them have been
showing strength of late on recovering macro fundamentals,
improving global trends, a weak U.S. dollar and supply/demand
imbalances.
Political uncertainty in the U.S. has been temporarily averted,
China is picking up slowly and Europe is seeing positive
improvements (read: Play a Resurgent Europe with These ETFs).
Further, tight supply conditions and recovering global demand
coupled with ‘no taper’ by the Fed last month boosted prices for
most of the products, in particular softs and industrial
metals.
Below, we have highlighted some of the top performing ETFs from
these two corners of the commodity market that have delivered
handsome returns over the trailing one-month period. Any of these
could be excellent plays for investors seeking to ride out the
sudden move in the softs and industrial metals space.
Dow Jones-UBS Sugar Subindex Total Return ETN
(SGG)
Sugar has been the top performer in the broad commodity space over
the past month. The recent surge can be traced to the supply
disruption in the world's largest sugar-exporting terminal,
Copersucar, caused by fire. In addition, poor weather conditions in
Brazil, the largest sugar producer in the world, are posing threats
to sugar harvest.
However, global supply glut and increased production from India,
the second biggest producer of the crop on earth, could keep prices
at check (read: Sugar ETFs: More Weakness Ahead?).
One product that has largely benefited from the recent trend is
SGG. The ETN tracks the Dow Jones-UBS Sugar Subindex Total Return,
which delivers returns through an unleveraged investment in the
futures contracts on sugar. The index currently consists of one
futures contract on the commodity of sugar.
The note has expense ratio of 0.75% and has amassed $33.8 million
in its asset base. Volume is light, suggesting additional cost in
the form of a wide bid/ask spread. Though the ETN gained nearly 10%
in the past one month, the long-term outlook does not look bright
as the product has a Zacks Rank of 5 or’ Strong Sell’
rating.
iPath Dow Jones-UBS Cocoa Subindex Total Return ETN
(NIB)
Cocoa price has been on the rise on growing chocolate demand and
bad weather conditions in the two major producing nations of West
Africa. This trend is expected to continue in the coming months
thanks to the upcoming holiday season that would continue to fuel
demand for chocolate.
Further, the global cocoa market would be in production deficit for
the next four consecutive years, according to the International
Cocoa Organization (read: (read: 2 Commodity ETFs Offering
Investors Sweet Returns).
Investors seeking to play this rally in cocoa prices could find NIB
an intriguing option. This ETN tracks the Dow Jones-UBS Cocoa
Subindex Total Return. The index delivers returns through an
unleveraged investment in the futures contracts on cocoa and
currently consists of one futures contract on the commodity (read:
all the agricultural ETFs here).
The product charges 75 bps in fees per year and trades in small
volume of nearly 36,000 shares on average daily basis. This
increases the trading cost in the form of a wide bid/ask spread.
The fund is also unpopular and has attracted just $45.4 million in
assets this year. The note added nearly 6.5% in the trailing one
month and currently has a Zacks Rank of 3 or ‘Hold’ rating.
iPath DJ-UBS Nickel Total Return Sub-Index ETN
(JJN)
Nickel prices are made an impressive comeback of late, as the
excessive oversupply situation is reversing and the demand from
alloy industries is rising.
Indonesia, the largest exporter of nickel ore in the world, is
seeking to prohibit ore exports at the beginning of the New Year.
This move would come as a big boon to nickel and drive prices much
higher next year.
A good way to play this trend is with JJN. The note provides
exposure through an unleveraged investment in the futures contracts
on nickel. It tracks the Dow Jones-UBS Nickel Subindex Total
Return, which consists of one futures contract on the commodity.
The product has managed assets worth $4.9 million and trades in
paltry volume, which increases the total cost of trading beyond the
expense ratio of 0.75%.
JJN added over 6% over the trailing one month. The product has a
Zacks Rank of 1 or ‘Strong Buy’ rating, suggesting that it could
outperform in the broad commodity world over the next one-year
period (read: all the Top Ranked ETFs).
Bottom Line
The recent trends have been encouraging for the trio that clearly
outpaced the broad commodity fund PowerShares DB Commodity Index
Tracking Fund (DBC) by wide margins. Investors could definitely
focus on these ETFs for a positive play on commodities that are
currently enjoying the run-up in their prices in the recent
weeks.
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IPATH-DJ-A NCKL (JJN): ETF Research Reports
IPATH-DJ-A COCO (NIB): ETF Research Reports
IPATH-DJ-A SUGR (SGG): ETF Research Reports
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