As investors consider rising rates and market volatility, commodities may provide an additional layer of portfolio diversification beyond traditional equity and fixed-income allocations.
“With rising market volatility and additional interest rate changes, we should expect stock and bond markets to experience heightened uncertainty,” Lorraine Wang, global head of ETF products and research at Invesco PowerShares, told Markets Media. “By having exposure to investments that have low correlation to those markets, investors may achieve an overall better risk-adjusted return.”
Invesco PowerShares has launched PowerShares DB Optimum Yield Diversified Commodity Strategy Portfolio (PDBC), an actively-managed ETF in commodity-linked futures contracts. PDBC provides exposure to components of the DBIQ Optimum Yield Diversified Commodity Index Excess Return, which is composed of futures contracts on 14 heavily traded commodities across the energy, precious metals, industrial metals and agriculture sectors.
“PDBC is an actively managed ETF that's benchmarked to a smart beta index which is the DBIQ,” Wang said. “We believe that because commodities have shown low correlation to traditional asset classes like stocks and bonds, it is something that investors may want to consider.”
Invesco PowerShares history with alternative ETFs dates to 2006, when it launched the PowerShares DB fund suite, which currently comprises 11 exchange-traded commodity pools, with an aggregate net asset value of $8.2 billion, combining the commodity product structuring and portfolio management expertise of Deutsche Bank with the ETF product marketing capabilities of Invesco PowerShares.
Invesco PowerShares and Deutsche Asset & Wealth Management have announced that the management of the PowerShares DB fund suite is anticipated to transfer from DB Commodity Services to Invesco PowerShares, which will assume the role of commodity pool operator and commodity trading advisor for the funds.
Deutsche AWM will continue to provide access to the underlying Deutsche AWM indices and related ongoing support.
“With that acquisition, we are essentially leveraging our existing leadership in the commodities space by expanding our line-up of commodity ETFs,” said Wang. “The investment strategy and the underlying indexes that are used by the existing funds will not change. They will continue to be based on the DB indexes, so DB is essentially providing the licensing of the indexes to Invesco PowerShares.”
Invesco PowerShares currently offers 60 smart beta ETFs with track records exceeding five years. “Smart beta ETFs seek to provide exposure to various factors that, over long periods of time, have been shown to deliver excess returns to cap-weighted benchmarks,” said Wang.
Featured image via Comugnero Silvana/Dollar Photo Club
