When you consider that the commodity ETP space has grown from one sole product in 2004 to over 140 today, over which time average annual inflows have totalled USD8billion, it’s perhaps unsurprising that Invesco PowerShares moved quickly to forge a leading position in this high-growth product segment.
Through a partnership with Deutsche Bank, Invesco PowerShares rolled out its first commodity ETF in 2006: since then it has brought 25 additional commodity ETPs to market, representing USD11.5billion in total AUM. Only iShares and State Street run more AUM.
There are currently eight different ETFs available to investors in the PowerShares DB commodity ETF range. These range from an DB Commodity Index Tracking Fund (DBC) and DB Agriculture Fund (DBA) through to DB Base Metals Fund (DBB), DB Precious Metals Fund (DBP) also DB Gold Fund (DGL) and DB Silver Fund (DBS) and DB Energy Fund (DBE) in the form of the DB Oil Fund (DBO).
What’s unique about these products, developed and managed by DB Commodity Services LLC is that they all invest in commodities via futures contracts. Graham Day, Alternative Asset Product Strategist at Invesco PowerShares, believes this is an efficient way to access commodities.
Underpinning each ETF is a rules-based algorithm called Optimum Yield. Instead of automatically rolling into the next month contract, like traditional commodity funds, the Optimum Yield process analyses the next 13 months of futures contracts and selects the contract that aims to generate the best possible roll yield.
“In a contango market (upward sloping, price falling) that means typically rolling further out on the futures curve. In a backwardated market (downward sloping, price rising), the optimal place to roll is often at the front of the futures curve. The shape of the curve, however, can change. This is why we believe it is important to utilise a flexible roll strategy,” explains Graham Day (pictured), alternative asset product strategis at Invesco PowerShares.
However, Day confirms that in the DBA fund there are a few commodities “that DB Commodity Services LLC doesn’t use the optimum yield strategy for due to liquidity constraints further out on the curve”.
“What PowerShares initially set out to do was Lead the Intelligent ETF Revolution®, looking beyond what the benchmarks are doing to do more for our investors,” confirms Day,
Last year was a challenging one in the commodity ETF space for the PowerShares DB ETPs but whilst performance was relatively flat, its flagship DBC fund was still the top-performing ETF versus its peers.
“In 2011 it returned -2.7 per cent, whereas our main competitors GSG (iShares GSCI fund) and DJP, the iPath ETN which is based on the DJ UBS Commodity Index, were down -3.26 per cent and -14.52 per cent respectively. It was an especially difficult year for agriculture; crop yields turned out to be a lot better than expected,” says Day.
The DBC fund was the second most popular commodity ETF in terms of net inflows according to Day. The biggest recipient of inflows was the iShares gold ETF, which attracted USD2.7billion. “Next in line was DBC, which attracted approximately USD580million.”
On winning the award Day says: “It’s great to be recognised for having a product we feel adds a tremendous amount of value to our clients. DBC has been the top performing broad-based commodity ETF or mutual fund over the last five years. We believe we are providing clients with value-added products. This award recognises that and we definitely appreciate it.”
