Investing in commodities comes with several potential benefits that investors should consider, especially during periods of inflation and supply-demand imbalances. Explore these benefits and our line of ETFs.
Invesco is a leader within commodity ETFs, offering unique solutions since 2006. Our distinct commodity lineup is represented by nine ETFs that provide clients access to a diverse group of commodity sectors and may provide three key benefits.
Incorporating commodities can help diversify1 a traditional investment portfolio of stocks and bonds.
Allocating to commodities can offer a hedge against elevated inflation.2
Given its global reach and wide usage, commodities may offer attractive return potential.
Crypto bore the brunt of the unexpected hawkish July rate hike from the Japanese central bank and the ensuing risk asset correction. Both bitcoin and Ethereum, or ETH, dropped dramatically, reaching the lowest levels since February, before they recovered slightly — but not to the same levels. We think a combination of factors — both macro and crypto-related — contributed to this. The macro factors, in addition to the Japanese rate hike, were the weakening US employment and manufacturing data, and the declining odds of a Trump victory. Former President Trump is currently considered the “Crypto Candidate.” The crypto-specific factors include: 1. Jump Crypto, a crypto-native, selling approximately $470 million worth of ETH, 2. net outflows from Ethereum ETP’s, and 3. the disposal of seized tokens by creditors of the failed Mt. Gox exchange. The macro factors created a bearish backdrop for global risk assets, which combined with the crypto-native factors, exacerbated the impact on crypto. Historically speaking though, drawdowns of this magnitude aren’t uncommon during crypto bull markets. And there are positive macro and crypto-specific catalysts ahead. The expected Federal Reserve rate easing cycle could improve the macro picture over time. On the crypto front, the forthcoming delivery of cash to FTX creditors may put more money in the hands of the crypto committed investors.
As the market heads “back to school” we can expect a great deal of activity in bitcoin and ETH. Reach out to your Invesco contacts to learn more about this interesting asset class. Get more insights in the featured products and resources section below this video.
Important Information
All data as from Galaxy Research Alert, Taking Stock of the Market Reprice, Aug 09,2024 unless otherwise noted
Not a Deposit Not FDIC Insured Not Guaranteed by the Bank May Lose Value
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All investing involves risk, including the risk of loss.
Past performance is not a guarantee of future results.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions expressed are those of Invesco, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
There are risks involved with investing in ETFs, including possible loss of money. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Bitcoins are considered a highly speculative investment due to their lack of guaranteed value and limited track record. Because of their digital nature, they pose risk from hackers, malware, fraud, and operational glitches.
Bitcoins are not legal tender and are operated by a decentralized authority, unlike government-issued currencies. Bitcoin exchanges and Bitcoin accounts are not backed or insured by any type of federal or government program or bank.
Shares are not individually redeemable, and owners of the Shares may acquire those Shares from the Fund and tender those Shares for redemption to the Fund in Creation Unit aggregations only, typically consisting of 10,000, 20,000, 25,000, 50,000, 75,000, 80,000, 100,000, or 150,000 Shares.
Invesco Distributors, Inc. 09/24 NA 3799825
Our commodity experts provide a monthly review of the commodity market and key drivers going forward.
| Fund | Ticker | Total expense ratio | Net expense ratio | How to invest |
|---|---|---|---|---|
| Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF | PDBC | 0.67% | 0.59%* | Invest in PDBC Fact sheet |
| Invesco Agriculture Commodity Strategy No K-1 ETF | PDBA | 0.74% | 0.59%* | Invest in PDBA Fact sheet |
| Invesco Electric Vehicle Metals Commodity Strategy No K-1 ETF | EVMT | 0.73% | 0.59%* | Invest in EVMT Fact sheet |
| Invesco DB Commodity Index Tracking Fund | DBC | 0.87% | 0.87% | Invest in DBC Fact sheet |
| Invesco DB Agriculture Fund | DBA | 0.93% | 0.93% | Invest in DBA Fact sheet |
| Invesco DB Base Metals Fund | DBB | 0.77% | 0.77% | Invest in DBB Fact sheet |
| Invesco DB Energy Fund | DBE | 0.77% | 0.77% | Invest in DBE Fact sheet |
| Invesco DB Oil Fund | DBO | 0.77% | 0.77% | Invest in DBO Fact sheet |
| Invesco DB Precious Metals Fund | DBP | 0.77% | 0.77% | Invest in DBP Fact sheet |
*Includes Estimated Futures Brokerage Fee. See the prospectus for more information.
Amidst the ever-changing commodity landscape, our experts, Kathy Kriskey and Jason Bloom, take you through your top-of-mind questions surrounding the asset class.
Commodities can be attractive for investors seeking diversification,1 an inflation hedge,2 or simply attractive return potential.
In addition to the benefits of commodities in general, investing through ETFs can also provide increased benefits like convenience, ease of access, and transparency.
Some of the most heavily traded global commodities include Brent crude oil, West Texas Intermediate (WTI) crude oil, natural gas, gold, silver, copper, and agricultural commodities, such as corn and sugar. While the broader universe is significantly more expansive, the DBIQ Optimum Yield Diversified Commodity Index Excess Return provides exposure to 14 of the most widely traded commodities in the world.
The commodities landscape is comprised of four primary sub-sectors: Agriculture, energy, industrial metals, and precious metals.
As measured by inflation beta5 from 1998 to 2022, commodities are historically the most efficient hedge for inflation of any major asset class, even when compared to common inflation-fighting instruments, like Treasury Inflation-Protected Securities (TIPS),6 real estate investments trusts (REITs),7 and gold.8 This is because commodities are raw materials used as inputs in housing, transportation, and food, all components of the CPI. In addition, inflation shocks are usually the byproduct of stronger-than-expected demand and/or supply uncertainty, all of which may boost the price of goods.
Futures contracts trade on exchanges, representing an agreement between the buyer and seller whereby the price is fixed, and the buyer agrees to take delivery of the underlying asset at a specified date in the future. Futures-based commodity ETFs use derivatives, including futures and swaps, to deliver commodity exposure.
In the commodity arena, spot prices typically don’t match futures prices, creating situations of backwardation and contango. Spot prices are the current costs for a particular commodity for immediate delivery, while futures prices reflect delivery of the commodity at a particular future date. Backwardation occurs when the spot price of a commodity is higher than futures prices, signaling an expected shortage of supplies; consumers are willing to pay more to receive the product now in preparation for the shortage. On the flip side, contango describes the scenario in which a commodity’s futures contracts are priced higher than what’s seen in the spot market, signaling an expected surplus; consumers aren’t willing to pay more right now, given the abundance of supplies.
Most of the first commodities ETFs that were launched invest in the front-month contract. Given commodities are physical assets, to avoid physical delivery, funds will have to frequently sell out of expiring contracts and move to the following futures contract. During contango markets, this repeated buying and selling of positions can expose funds to high roll costs, considering they would have to sell a less expensive, expiring contract and buy a more expensive, later-dated contract.
The optimum yield methodology is a key feature of Invesco’s commodity suite. This approach seeks to maximize the roll yield during backwardation markets and minimize roll costs during contango markets, reducing the burden for investors to monitor and understand changing futures curve shapes. During backwardation markets, rolling further out the curve can potentially allow the funds to realize roll yield as the contracts appreciate as they move toward expiry.
Given the global reach of commodities, commodity prices have many drivers. However, some of the key influencing factors include:
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Sources: Invesco and Bloomberg L.P., as of 12/31/21. Based on our analysis of the historical inflation betas (using data from 1998-2021) of commodities, REITs, large-cap value equities, large-cap blend equities, gold, TIPS, and bonds. Commodities had the highest inflation beta, making it historically the most efficient inflation hedge among the group. Large-cap value equities were higher than large-cap blend equities, making it historically a more efficient inflation hedge versus large-cap blend equities. Inflation beta is a metric used to evaluate an asset class's ability to hedge inflation. It measures the change in inflation against the return of the asset class over a specific time period (i.e., it describes the return of an asset class given a 1% increase in inflation.) The analysis is based on specific indexes used as proxies, which are as follows: Commodity — DBIQ OY Commodity Index (12.26), Commodity — BCOM Index (8.97), REITS — FTSE NAREIT All Equity REITS Index (5.79), Large-cap Value Equities — S&P 500 Pure Value Index (5.11), Large-cap Blend Equities — S&P 500 Index (2.91), Gold — XAU (2.88), TIPS — Bloomberg US Treasury Inflation-Linked Bond Index (1.58), and Bonds — Bloomberg Intermediate US Government/Credit Bond Index (-0.37). DBIQ OY Commodity Index — The DBIQ Optimum Yield Diversified Commodity Index is a rule-based index composed of futures contracts of the 14 most heavily traded and important global commodities. BCOM Index — The Bloomberg Commodity Index (BCOM) tracks the performance of a diversified basket of global commodities. REITs (as measured by FTSE NAREIT All Equity REITs Index) stands for Real Estate Investment Trusts, which are companies that own and/or operate income-producing real estate. The index is an unmanaged index considered representative of US REITs. The S&P 500 Pure Value index is a style-concentrated index designed to track the performance of stocks that exhibit the strongest value characteristics by using a style-attractiveness-weighting scheme. The S&P 500 Index is a market-capitalization-weighted index (the largest companies based on market capitalization make up the largest portion of the index) consisting of the 500 largest, most prominent publicly traded companies in the US as determined by S&P. XAU — Gold spot price quoted in US Dollars. TIPS (as measured by Bloomberg US Treasury Inflation-Linked Bond Index) stands for Treasury Inflation-Protected Securities, which are Treasury bonds indexed to inflation to protect investors against a decline in purchasing power. The index measures the performance of the US TIPS market. Bloomberg Intermediate US Government/Credit Bond Index is a broad-based benchmark that measures the non-securitized component of the US Aggregate Index with less than 10 years to maturity. The index is comprised of the Intermediate US Treasury and US agency indices.
Source: Bloomberg, L.P., as of 3/31/23. Correlation time period 12/31/1997 to 3/31/2023. Commodities are represented by the S&P GSCI Index Total Return. Stocks are represented by the S&P 500 Total Return Index. Bonds are represented by the Bloomberg US Treasury Bond Index. A correlation is any statistical relationship, whether causal or not, between two random variables or bivariate data. An investment cannot be made directly into an index.
Source: Bloomberg L.P., Jan 1991–Mar 2023. CPI is represented by the CPI YOY Index, and commodities are represented by the S&P GSCI Index. The analysis is based on the year-over-year CPI and monthly rolling year-over-year commodity returns.
Inflation beta is a metric used to evaluate an asset class’s ability to hedge inflation. It measures the change in inflation against the return of the asset class over a specific time period.
The value of inflation-linked securities will fluctuate in response to changes in real interest rates, generally decreasing when real interest rates rise and increasing when real interest rates fall. Interest payments on such securities generally vary up or down along with the rate of inflation. Real interest rates represent nominal (or stated) interest rates reduced by the expected impact of inflation.
REITs are pooled investment vehicles that trade like stocks and invest substantially all their assets in real estate and may qualify for special tax considerations. REITs are subject to risks inherent in the direct ownership of real estate. A company’s failure to qualify as a REIT under federal tax law may have adverse consequences for the REIT’s shareholders. REITs may have expenses, including advisory and administration, and REIT shareholders will incur a proportionate share of the underlying expenses.
Sources: Bloomberg L.P. and US Bureau of Labor Statistics, as of December 2022
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Investors should be aware of the material differences between mutual funds and ETFs. ETFs generally have lower expenses than actively managed mutual funds due to their different management styles. Most ETFs are passively managed and are structured to track an index, whereas many mutual funds are actively managed and thus have higher management fees. Unlike ETFs, actively managed mutual funds have the ability react to market changes and the potential to outperform a stated benchmark. Since ordinary brokerage commissions apply for each ETF buy and sell transaction, frequent trading activity may increase the cost of ETFs. ETFs can be traded throughout the day, whereas, mutual funds are traded only once a day. While extreme market conditions could result in illiquidity for ETFs. Typically they are still more liquid than most traditional mutual funds because they trade on exchanges. Investors should talk with their financial professional regarding their situation before investing.
Important information about PDBC & EVMT
There are risks involved with investing in ETFs, including possible loss of money. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.
Risks of futures contracts include: an imperfect correlation between the value of the futures contract and the underlying commodity; possible lack of a liquid secondary market; inability to close a futures contract when desired; losses due to unanticipated market movements; obligation for the Fund to make daily cash payments to maintain its required margin; failure to close a position may result in the Fund receiving an illiquid commodity; and unfavorable execution prices.
In pursuing its investment strategy, particularly when "rolling" futures contracts, the Fund may engage in frequent trading of its portfolio securities, resulting in a high portfolio turnover rate.
Commodity-linked notes may involve substantial risks, including risk of loss of a significant portion of principal and risks resulting from lack of a secondary trading market, temporary price distortions, and counterparty risk.
Swaps are subject to leveraging, liquidity and counterparty risks, and therefore may be difficult to value. Adverse changes in the value or level of the swap can result in gains or losses that are substantially greater than invested, with the potential for unlimited loss.
The Fund may hold illiquid securities that it may be unable to sell at the preferred time or price and could lose its entire investment in such securities.
Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.
An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.
The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund's investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.
Investments linked to prices of commodities may be considered speculative. Significant exposure to commodities may subject the Fund to greater volatility than traditional investments. The value of such instruments may be volatile and fluctuate widely based on a variety of factors. Prices fluctuations may be quick and significant and may not correlate to price movements in other asset classes.
Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested.
To qualify as a regulated investment company (“RIC”), the Fund must meet a qualifying income test each taxable year. Failure to comply with the test would have significant negative tax consequences for shareholders. The Fund believes that income from futures should be treated as qualifying income for purposes of this test, thus qualifying the Fund as a RIC. If the IRS were to determine that the Fund’s income is derived from the futures did not constitute qualifying income, the Fund likely would be required to reduce its exposure to such investments in order to maintain its RIC status.
Leverage created from borrowing or certain types of transactions or instruments may impair liquidity, cause positions to be liquidated at an unfavorable time, lose more than the amount invested, or increase volatility.
EVMT
Investments focused in a particular sector, such as metals, are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments. Investments in metals may be highly volatile and can change quickly and unpredictably due to several factors, including the supply and demand of each metal, environmental or labor costs, political, legal, financial, accounting and tax matters and other events the Fund cannot control. As a result, the price of a metal could decline, adversely affecting the Fund’s performance.
Thematic investing involves the risk that the electric vehicle theme is out of favor, or that the metals chosen to capitalize on that theme underperform the market. The Fund invests in instruments linked to the metals used in the production of electric vehicles, and performance may suffer if the metals do not benefit from the development of the electric vehicle theme. While the Fund will not invest directly in electric vehicle and other related companies, the performance of its commodity-based strategy may be indirectly impacted by the performance of such companies.
Important Information about DB Funds
These Funds are not suitable for all investors due to the speculative nature of an investment based upon the Funds’ trading which takes place in very volatile markets. Because an investment in futures contracts is volatile, such frequency in the movement in market prices of the underlying future contracts could cause large losses. See the Prospectus for risk disclosures.
Commodities and futures generally are volatile and are not suitable for all investors.
The value of the Shares of the Funds relate directly to the value of the futures contracts and other assets held by the Funds and any fluctuation in the value of these assets could adversely affect an investment in the Funds’ Shares.
Please review the prospectus for break-even figures for the Funds.
The Funds are speculative and involves a high degree of risk. An investor may lose all or substantially all of an investment in the Funds.
The Funds are not a mutual fund or any other type of Investment Company within the meaning of the Investment Company Act of 1940, as amended, and is not subject to regulation thereunder.
This material must be accompanied or preceded by a DBA, DBB, DBC, DBE, DBO, and DBP prospectus. Please read the prospectus carefully before investing.
These Funds issue a Schedule K-1.
Invesco Capital Management LLC, investment adviser and Invesco Distributors, Inc., ETF distributor are indirect, wholly owned subsidiaries of Invesco Ltd.
Invesco Capital Management LLC and Invesco Distributors, Inc. are not affiliated with Deutsche Bank Securities, Inc.
The Shares of the Fund are not deposits, interests in or obligations of any Deutsche Bank AG, Deutsche Bank AG London Branch, Deutsche Bank Securities, Inc. or any of their respective subsidiaries or affiliates or any other bank (collectively, the "DB Parties") and are not guaranteed by the DB Parties.
DBIQ Optimum Yield Diversified Commodity Index Excess ReturnTM, DBIQ Optimum Yield Diversified Commodity Index Total ReturnTM, Deutsche Bank Liquid Commodity IndexTM and Deutsche Bank Liquid Commodity Index–Optimum Yield Diversified Excess ReturnTM (the "Indices") are products of Deutsche Bank AG and/or its affiliates. Information regarding these Indices is reprinted with permission. ©Copyright 2020. All rights reserved. Deutsche Bank® DBTM, DBIQ® Optimum YieldTM, DBIQ Optimum Yield Diversified Commodity Index Excess ReturnTM, DBIQ Optimum Yield Diversified Commodity Index Total ReturnTM, Deutsche Bank Liquid Commodity IndexTM and Deutsche Bank Liquid Commodity Index–Optimum Yield Diversified Excess ReturnTM are trademarks of Deutsche Bank AG. The Indices and trademarks have been licensed for use for certain purposes by Invesco Capital Management LLC, an affiliate of Invesco Distributors, Inc. The Fund is not sponsored, endorsed, sold or promoted by DB Parties or their third party licensors and none of such parties makes any representation, express or implied, regarding the advisability of investing in the Fund, nor do such parties have any liability for errors, omissions, or interruptions in the Indices. As the Index Provider, Deutsche Bank AG is licensing certain trademarks, the underlying Index and trade names which are composed by Deutsche Bank AG without regard to Index, this product or any investor. |
The DBIQ Optimum Yield Diversified Commodity Index is a rule-based index composed of futures contracts of the 14 most heavily-traded and important global commodities.
The S&P GSCI Commodity Index is an unmanaged index used as a measurement of change in commodity market conditions based on the performance of a basket of commodities. S&P GSCI Commodity Index Total Return is a trademark of Standard & Poor's, a Division of The McGraw-Hill Companies, Inc.
The Bloomberg US Treasury Index is an unmanaged index of public obligations of the US Treasury with remaining maturities of one year or more.
The Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics.
Real Estate Investment Trusts are companies that own and/or operate income-producing real estate. The FTSE NAREIT All Equity REITs Index is an unmanaged index considered representative of US REITs.
XAU is the gold spot price quoted in US dollars.
Treasury Inflation-Protected Securities are Treasury bonds indexed to inflation to protect investors against a decline in purchasing power. The Bloomberg US Treasury Inflation-Linked Bond Index index measures the performance of the US TIPS market.
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