Under The Hood: Maybe The Best Commodity Index ETF

There's no shortage of ETFs and ETNs available on U.S. exchanges that offer exposure to a specific commodity and that high level of choice is good for investors. There also isn't a dearth of ETFs that offer basket exposure to several commodities. Again, that's a good thing. At least it should be. The problem with many ETFs that take the basket approach to commodities, commonly known as commodity index ETFs, is that they aren't all that diverse. Frankly, most are excessively weighted to a mixture of energy futures contracts meaning investors are basically buying an oil/natural gas ETF. For a truly diverse approach to commodities investing, the best option may just be the GreenHaven Continuous Commodity Index ETF GCC, today's “Under The Hood” candidate. By any metric, GCC has been a success. The ETF is over five years old and has accumulated over $724 million in assets under management. Average daily volume exceeds 265,000 shares and in the past five years, GCC has outperformed other commodity index ETFs, such as the PowerShares DB Agriculture Fund DBA and the PowerShares DB Commodity Tracking Index ETF DBC. GCC's success lies in its diversity. The ETF offers exposure to 17 different commodities on an equal-weight exposure. That lineup includes corn, cotton, wheat, soybeans, live cattle, lean hogs, coffee, cocoa, sugar, oil, natural gas, orange juice, gold, silver, platinum and heating oil. GreenHaven isn't shy about trumping its relative lack of energy exposure compared to comparable funds as the firm makes note of this on its Web site. Still, energy futures account for 17.6% of GCC's weight. Grains get the same allocation, but both energy and grains are well outpaced by softs (29.4%) and metals (23.5%). Livestock futures receive an allocation of almost 12%. One knock on GCC would be an expense ratio of 0.85%, which is high by the standards of unleveraged long ETFs, but not unsurprising given the costs of having to purchase futures contracts for 17 different commodities. The deciding factor with a fund like GCC should be whether or not the ETF has the potential to outperform comparable ETFs (it has) and single-commodity funds. In the latter case, on a year-to-date basis, GCC has bested the U.S. Oil Fund USO and ETNs tracking cattle, cocoa and cotton, just to name a few. That bolsters the case for making GCC a top choice for diversified commodities exposure.