Commodities can help investors diversify their portfolios, but they’re much more complex than stocks and bonds. While you can purchase physical gold, most commodity investors buy and sell futures contracts promising to deliver a commodity at a specific price and date. And these futures contracts have complex, option-like properties.
Commodity ETFs simplify the process by managing futures contracts on behalf of their investors. But, as the United States Oil Fund (USO) collapse demonstrated in 2020, it’s essential to choose competent fund managers and understand their strategies to avoid catastrophe.
The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) offers one of the most robust actively managed strategies with a diverse commodity basket that can adapt to changing market conditions.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
Invesco’s Unique Methodology
The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) is an actively managed ETF that invests in commodity-linked futures and other financial instruments that provide economic exposure to a diverse group of the world’s most heavily traded commodities. The fund managers’ goal is to provide long-term capital appreciation.
The fund’s top holdings include:
- NY Harbor ULSD – 16.98%
- Gasoline – 12.22%
- Brent Crude – 11.41%
- WTI Crude Oil – 11.04%
- Natural Gas – 8.53%
Unlike rival commodity ETFs, Invesco’s optimum yield methodology doesn’t follow a predefined rolling schedule but instead aims to maximize roll yields while minimizing roll costs. In particular, the fund calculates the annualized implied roll yield/cost for each contract and selects optimal contracts from a universe of the first 13 months of contracts.
Using the strategy, the fund generated a nearly 21% return (NAV) since the beginning of the year (through November 15, 2022), making it one of the top-performing commodity funds. As a result, investors seeking exposure to commodities may want to consider PDBC for their portfolio to add diversification and potential alpha.
Invesco’s Commodity Outlook
Invesco’s most recent commodity digest, published in October 2022, projects a turnaround in commodity markets. While recession fears and dollar strength hurt prices this summer, the possibility of a relaxed COVID-19 policy in China, stabilization in Europe this winter, and slowing interest rate hikes in the U.S. could improve the demand picture.
The firm’s portfolio managers are bullish on energy after OPEC+ cuts earlier this year and European sanctions on Russian crude oil that went into effect on December 5. After prices reached new lows in recently, there could be significant room to move higher over the coming months, particularly if the Russia-Ukraine crisis deteriorates.
Other commodities have less certainty. Drought conditions in the U.S., heavy rains in Brazil, and delayed plantings in Argentina could boost agricultural commodities somewhat, making the managers mildly bullish. Meanwhile, industrial metals are mixed with uncertainty over China’s zero-COVID-19 policy and U.S. dollar strength.
The Bottom Line
Commodity ETFs make it easy for investors to diversify their portfolios and capitalize on geopolitical events.
The Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC) offers one of the most compelling strategies with a diverse commodity basket. As a result, investors looking to capitalize on potentially higher energy prices and other opportunities may want to consider the fund for their portfolios.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
