Commodities ETF

by Darren

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Everyone can clearly see that commodity prices are soaring. Yet most of us aren’t in a position to invest in commodities directly. This is where a mutual fund or an ETF could come in handy. The advantages of such and ETF seem obvious: individual investors can invest in the fund, and allow the fund to do the heavy lifting when it comes to actually trading the commodities.

Of course adventurous investors can trade in commodities themselves, but they’ll be at a clear disadvantage against the “big boys” in the trading pit. There are obvious drawbacks to trading commodities yourself.

“Futures can have unlimited risk,” said Kevin Kerr, a commodities trader and founding partner of Kerr Trading International. “Futures can get expensive.”

Instead, investors can choose to purchase an ETF, such as DBA, which is the Deutsche Bank Agriculture ETF.

DBA has seen a one year low of $26 and one year high of $42, so investors who made a careful entrance are doing quite well for themselves. DBA was up 19% from January to April of 2008, greatly outpacing the market. With $2.6 billion in capital, the fund looks poised to cash in on a long term positive trend for agricultural products.

If you’re interested in looking at the short side of agricultural commodities, a number of ETNs, or “exchange traded notes” have sprung up in order to satisfy your craving. ETNs tend to be more risky of an investment because they are treated differently for tax purposes than ETFs, and and they carry credit risks, which ETFs don’t.

Right now, I think a Commodity ETF like DBA could supplement just about anyone’s investing diet, especially if commodity prices continue to rise, like it appears they will.

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