Invesco has launched a new actively managed commodities ETF providing broad exposure across the most heavily traded agricultural futures.
Anna Paglia, Global Head of ETFs and Indexed Strategies at Invesco.
The Invesco Agriculture Commodity Strategy No K-1 ETF (PDBA US) has been listed on Nasdaq with an expense ratio of 0.59%.
Anna Paglia, Global Head of ETFs and Indexed Strategies at Invesco, said: “The Invesco Agriculture Commodity Strategy No K-1 ETF builds on our history of strategically launching new commodity ETFs that pioneer easy and cost-effective exposure to sectors like agriculture that may otherwise be difficult for investors to access.”
Kathy Kriskey, Product Strategist, Commodities and Alternatives ETFs at Invesco, added: “Agriculture may be one of the most important sectors of the global economy. Recent geopolitical events coupled with climate change and extreme weather have created supply constraints and price volatility, directly impacting the global grains trade.”
Investment approach
According to the ETF’s prospectus, the fund invests in a range of derivatives and other financial instruments in a bid to exceed the return on the DBIQ Diversified Agriculture Index.
As of 30 June, the benchmark index was composed of front-month futures contracts for the 11 most actively traded agricultural commodities globally – soybeans (index weight of 14.2%), corn (13.5%), coffee (11.8%), sugar (11.4%), live cattle (11.1%), cocoa (9.3%), lean hogs (8.4%), Kansas wheat (7.2%), wheat (6.7%), feeder cattle (3.6%), and cotton (2.7%).
Invesco notes that the ETF will typically align its holdings in weights that are consistent with the benchmark, although the fund’s active management affords it the ability to respond to market changes or to exploit the shape of individual commodity futures curves by investing in contracts with longer-dated maturities.
Notably, the ETF is structured under the 1940 Act and, therefore, issues a Form 1099 tax form rather than a Schedule K-1 which many investors find cumbersome.
According to Invesco, the firm’s $15 billion suite of commodities ETFs in the US has recorded over $3.2bn in net inflows this year from investors seeking to hedge their portfolios against economic issues including rising interest rates, US inflation, and geopolitical unrest.
Investors who have increased their commodities exposure in 2022 have reaped significant rewards as the asset class has far outperformed equities – the broadly diversified Invesco DB Commodity Index Tracking Fund (DBC US) has delivered a return of 46.2% year-to-date (as of 26 August) compared to a gain of just 1.7% for the S&P 500 and a 1.1% loss for the MSCI ACWI over the same period.
Performance has been mixed across different commodity sectors, however, with the Invesco DB Energy Fund (DBE US) up 75.4%, while the Invesco DB Gold Fund (DGL US) has risen a more modest 8.5% as rising interest rates have put a dampener on gold investment.
The $1.2 billion Invesco DB Agriculture Fund (DBA US), which delivers purely passive exposure to the DBIQ Diversified Agriculture Index and issues a Schedule K-1 tax form, has gained 18.7% thus far this year.