Hi All,

I have a well diversified portfolio now but I've been looking for something in commodities to round it off. Two Exchange-Traded choices have caught my attention over the past few months:  DJP and DBC.

How 'bout some Peanut Gallery comments on which one YOU prefer?

Thanks,

Igneous

I just learned about these recently. Right now I prefer DJP because it is better diversified. However, DBC employs a rebalancing strategy that Deutsche Bank claims gives DBC better performance. Only time will tell whether that actually works in practice. The expense ratios of both DJP and DBC are higher than I'd like.

By the way, Ibbotson Associates conducted a study for PIMCO to figure out how much of one's portfolio should be invested in commodities. The study is here.

 

 I read parts of that study (a bit to formal for me) , here's the last paragraph (and):

"No matter which set of returns was used, including commodities in the opportunity set improved the risk-return characteristics of the efficient frontier. Furthermore, commodities played an important and significant role in the strategic asset allocations. Given the inherent return of commodities, there seems to be little risk that commodities will dramatically underperform the other asset classes on a risk-adjusted basis over any reasonably long time period. If anything, the risk is that commodities will continue to produce equity-like returns, in which case, the forward looking strategic allocations to commodities are too low."

I'm not sure what the last sentence said. (?) 

But I like DJP.

Thanks zarathustra that was an interesting read. I too lean to DJP because of more diversification and have been waiting for the price to come down to about 48.

As you can see I haven't checked this forum for a while because of it's lack of activity. I wonder where all those former M* folks went that were all over this website a couple of years ago.

Thanks again

would be my choice because of its broad exposure.

However, I'm not sure the high ER and brokerage costs wash out the diversification benefit. For now, I'm staying away.

Good Luck, Ken. 

Thanks to all who replied. I'll be keeping an eye on DJP. Smokey, I believe that sentence in the article is like a worst case scenario. Since there seems to be no offsetting vehicles anymore I'd like to try anything I can get. When domestic stocks are down, we used to be able to count on bond funds and international equities to smooth us out but it seems we now need more.

If anyone else has ideas that would help our portfolio's stay on a more even keel, besides maybe real estate and cash, when the market is down, chime in.

Thanks for the good string.

 

 

It makes sense to allocate 5 to 10% of your portfolio to commodities. I have owned DJP over a year. The other funds have an overwieght towards oil. I know oil is the place to be but I wanted a more broad exposure to the area. DJP allows no more then 30% in one commodity, I beleive DBC has a 70% exposure to oil, at that point why not just buy OIL. At .75% and a annual rebalancing with a percentage cap DJP makes a lot of sense to me. I have done very well, in fact I added more last week. The word of caution is, commodities soar and then fall hard, stocks seem to have a smoother ride and also commodities have under performed equities in longer time frames. Good luck

You may wish to check the thread at Index Universe for some discussion of this topic and IMO, for some good ideas from Larry Swedroe and others.

Thanks for reminding me of the 70% exposure to oil. I bought this a couple of months ago when I was in my "why not" frame of mind and it has done very well. However, I think I will take profits Monday and reallocate to DJP for all the reasons mentioned. The news going forward on commodities just seems to make sense to have some.

DBC does NOT have a 70% exposure to oil.  It has a total exposure of 55% to Energy of which 35% is crude oil and 20% is home heating oil. I currently own DBC and it has significantly outperformed DJP on both a YTD (21.4% vs. 11.0%) and 1-year basis (24.7% vs. 9.9%). I believe that most of the outperformance comes from the "optimum yield" strategy that the fund uses.

One problem with DJP - it is an ETN not an ETF.  There is some risk when buying a note, even from Barclays. With an ETF there is no such risk; you own the underlining securities. ETN is a promissory note. Just one more bit of risk to be aware of

Question: If you are investing for the long term, why are you so concerned about volatility? Is it because you have a relatively low risk tolerance? (I don't mean that pejoratively.) Personally, I think DJP is a great choice for a bit more diversification. But I also think stability in the portfolio is overemphasized these days---especially for people with long time horizens.

I went with DBC.  The ETN risk associated with DJP, along with DBC's active management strategy to minimize contango made DBC the preferred choice for me of the two.

mase

Hi,

 

Please look at the guru of commodities index - RJI , it has better performance and is better diversified than DJP or DBC.

 

Just some food for thought.

 

thanks

amit 

Check your facts. RJI has outperformed DJP but not DBC. Since the inception of RJI (Oct 19, 2007), the performance of the 3 funds has been:

RJI = 1.48%

DBC = 6.85%

DJP = .36%

Hi,

 

Please look up historical returns. The reason for outperformance is high energy allocation . Not truly diversification of a commodity.

 

thanks

amit 

It does not matter how DBC achieved its outperformance. Your statement regarding RJI outperforming the DBC is still incorrect.

I don't think that RJI outperforming DBC is incorrect... please read the following:

http://seekingalpha.com/article/54527-a-rundown-of-broad-commodities-indexes

which states that the index that RJI is based on actually led the pack (including DBC)...

 

 

Personally speaking, does it really matter whether DJP, DBC or RJI is superior? :)   The fact is, commodities provide valuable asset diversification and can enhance your long-term returns regardless of which of diversified basket of commodities you pick. When you consider that they they'll probably account for 10% or less of your portfolio, why spend countless hours trying to decide?

I didn't choose any of the ETF options discussed, but decided to go with PCRDX. Is there a cheaper way to obtain commodities exposure? Probably. Is there an alternative which can perform better? Probably. But the fact is, these issues aren't that critical to me. Obtaining the 10% exposure to an index of commodities was important. I spent much more time trying to understand the characteristics and importance of commodities as an asset class than I ever spent selecting the product.

But hey, what do I know? :)

 

[quote user="sensei"]

Personally speaking, does it really matter whether DJP, DBC or RJI is superior? :)   The fact is, commodities provide valuable asset diversification and can enhance your long-term returns regardless of which of diversified basket of commodities you pick. When you consider that they they'll probably account for 10% or less of your portfolio, why spend countless hours trying to decide?

[/quote]

Well said.  Sometimes people on these boards are like kids in kindergarten comparing who/what is better...

PCRIX is a good option - I didn't have access to that share class, only the very expensive PCRDX, so I had to look elsewhere.

mase

[quote user="sensei"]

Personally speaking, does it really matter whether DJP, DBC or RJI is superior? :)   The fact is, commodities provide valuable asset diversification and can enhance your long-term returns regardless of which of diversified basket of commodities you pick. When you consider that they they'll probably account for 10% or less of your portfolio, why spend countless hours trying to decide?

[/quote]

Personally speaking, what matters is the effect that adding an investment has on the return and volatility of my portfolio.

I did not spend countless hours trying to decide among the commodity futures funds.  Historically, one of the three options listed above would have reduced the volatility of my portfolio much less than the other options.

Arbitrarily choosing  one option may result in choosing one with a significantly lower diversification benefit than the others.  It may not have made a significant difference to your protfolio, but it would have made a significant difference to mine.

Let me clarify my comments.

The commodity fund (PCRDX) which is in my portfolio attempts to mirror the DJ AIG Commodity Index. If one chooses an ETF which elects to use that index, or another similar commodities index, then what difference doe it make?

There may be other ETFs or funds which choose to juice their returns by overweighting a specific commdity, but that's an entirely different story. Likewise there are ETFs which focus on a single type of commodity, such as precious metals.  Again, a different situation.

I don't know if I've clarified my point to your satisfaction.

 

 

[quote user="sensei"]

Let me clarify my comments.

The commodity fund (PCRDX) which is in my portfolio attempts to mirror the DJ AIG Commodity Index. If one chooses an ETF which elects to use that index, or another similar commodities index, then what difference doe it make?

[/quote]

As far as I can tell, you don't have anything to clarify.  I responded to your question: "Personally speaking, does it really matter whether DJP, DBC or RJI is superior?"

The historical return and volatility of my protfolio would have been different depending or whether DJP, DBC, or RJI, the "three options", had been part of the portfolio.  One of those options would have had much less of a beneficial effect on the portfolio volatility than the other two.

For me (this is the personally speaking part), it would have mattered which of the three I had in my portfolio.

[quote user="sensei"]

There may be other ETFs or funds which choose to juice their returns by overweighting a specific commdity, but that's an entirely different story. Likewise there are ETFs which focus on a single type of commodity, such as precious metals.  Again, a different situation.

I don't know if I've clarified my point to your satisfaction.

[/quote]

In addition to the indexed tracked DJP, DBC, and RJI, I considered GSP (an ETN that tracks the GSCI) and modeled the PIMCO Commodity Real Return Strategy Fund as a combination of the DJAIG index and the Lehman Brothers TIPS index.  I did not consider any other commodity investments.

RJI is the fund not the index. The fund did not outperform DBC. 

RJI +0.28%, DJP +0.73%, DBC +0.91%, PCRDX +1.5%, RJA +3.26%. Any thoughts about their performance this week? Any pairing possibilities? RJA is the new Elements Rogers International Commodity Agriculture ETN (what a mouthful!).

i like gsg out of all of them

Mathjak, Why do you like GSG? It had a good year last year (+31%) but so far in 2008 it has been flat (-0.11%) losing -0.15% on Friday. Morningstar lists GSG's top holding as "Gsci Excess Retrn Mar11...98.78%" If you know what that represents, please explain. I wish Morningstar would develop a separate category for commodity funds instead of lumping them under specialty-natural resources.

it covers alot more products than dbc....    dbc moves very heavy with energy

Mathjak and Closer:

Thank you both for an interesting dialog on a subject I'm interested in. I'm looking for a mutual fund or ETF that invests in commodities directly rather than in the companies that own commodities. Also, I want one that, even if not top dog in its category, is not the most volatile one--which means avoiding those heavy (more than 1/3 of portfolio) in energy. I've looked at the major indexes in Rogers' book on commodities; I like his own index, but how to judge DJI's performance based on such a short span of time? A couple of questions: Do all the ETFs mentioned by you fellows deal in commodities? Does any one of them have a five-year or even three-year record? Would appreciate your advice.

emanon

  

Well I see there have been many interesting posts since I first started the string. As I mentioned many months ago I had been waiting for DJP to go down to 48 and then I changed that to 55........

Well, commodities as everyone knows has done quite well the past year. I never got a chance to buy low, so I missed out. Duh....

My original intent was to buy a commodity fund diversifier for long-term and for maybe 5% of my portfolio. I wanted it to cover most commodities with no one commodity having more than say 30% in oil/energy within the fund or note. I liked DJP for that. One day oil will come down...I think!  Pimco was ok, but to me still had too much in energy. I recently bought a few hundred shares of the new ETN:

E-TRACS UBS Bloomberg CMCI ETN (UCI)

I wanted to get in on the ground floor and we'll see how it goes for a couple of years.

Comments anyone?