PDBC: 1 ETF, 14 Crucial Commodities 📊

Greetings, ETF aficionados! We welcome you to this Thursday's meticulously crafted edition of the ETF UNO newsletter. In focus today is an exceptionally fascinating ETF - the Invesco Optimum Yield Diversified Commodity Strategy No K-1 Fund (PDBC). Allow us to illuminate what situates PDBC as a distinguished selection amidst the expansive universe of ETF opportunities.

What is PDBC?

PDBC is a prime opportunity for investors to gain exposure to a broad spectrum of commodities. As a leading fund in this category, PDBC has carved out a distinctive niche, offering a diversified and dynamic approach to commodity investment since its inception in 2014.

Managed by the renowned ETF provider Invesco, PDBC seeks to provide long-term capital appreciation using an investment strategy designed to exceed the performance of an index that selects futures contracts on 14 heavily traded commodities across energy, precious metals, industrial metals, and agriculture. This diversity helps investors access vital commodity sectors in one ETF.

PDBC distinguishes itself with its innovative structure, specifically designed to avoid issuing K-1 tax forms, thus simplifying the tax filing process for its investors. This feature, coupled with the fund's diversified approach, positions PDBC as a strategic option for those looking to add commodities to their portfolios without the typical complexities of commodity investment tax implications.

Inside PDBC's Basket 🧺

Based on the holdings data provided, the PDBC ETF has exposure to futures contracts across 4 major commodity sectors:

• 🛢️Energy - The largest exposure is to energy commodities like WTI crude oil, Brent crude oil, gasoline, heating oil and natural gas. Together these account for over 15% of the portfolio.

• 🥇Precious Metals - The fund has allocation to gold and silver futures, with gold making up 2.5% on its own.

• 🌽Agriculture - Crops like corn, soybeans, wheat and sugar make up over 5% of the total holdings.

• ⛓️Industrial Metals - Copper, aluminium and zinc futures add further diversification, combining for over 3.5% of assets.

_{* The most significant exposure of the ETF is collateral securities such as T-bills and money funds, as it uses leverage through the purchase of derivative contracts.}

These holdings demonstrate PDBC's strategy of diversifying across various sectors within the commodity market. This diversification helps mitigate the risk associated with commodity price volatility and provides investors with broad exposure to different commodity markets.

🏝️Commodities: An Oasis in Today's Market Storm

With inflation simmering and recession fears looming, investors face a complicated environment in 2023. Both stocks and bonds face challenges - equity valuations are sensitive to consumer demand and rates likely to rise further. In this uncertain backdrop, commodity exposure merits consideration.

Commodities were 2022’s top performing major asset class for the second straight year, despite mixed returns.

The complex has an encouraging macro setup today given still-high inflation and China's reopening. Micro tailwinds like geopolitics and underinvestment persist.

• Inflation Hedging Intact: Inflation over 6% in February 2023. History shows commodities strongly outperform when prices significantly exceed 2%. The asset class also has the highest sensitivity to inflation based on its correlation to CPI. Gradual Fed rate hikes target a soft landing, leaving room for sticky inflation.

• China Accelerating: China’s reopening after years of lockdowns brings huge potential commodity demand. The world’s top commodities importer already shows increasing mobility, benefitting energy usage and infrastructure that spurs industrial metals and crop purchases. Chinese economic upswing could provide a major price floor.

• Sustained Tension Premium: Russia’s ongoing Ukraine war continues affecting multiple commodity markets, from European energy flows to Black Sea grain exports. Although combat may remain at a stalemate, lingering negotiations impasses sustain tensions. This uncertainty preserves a meaningful risk premium across oil, gas, metals, crops, and more.

With uncertainty abounding, few assets match commodities’ mix of inflation sensitivity, economic cycle correlations and geopolitical exposure. The asset class continues demonstrating defensive attributes, making it a prime candidate for portfolio resilience.

PDBC at a glance

Asset Class: Commodity

Underlying Index: PDBC is actively managed by Invesco

Geographical Focus: Global

Sector Focus: Commodity

Expense Ratio: 0.59% (as of last data point)

Dividend Yield: 13.34% (as of last data point)

Distribution Frequency: Yearly

Historical Performance

Looking at historical performance, PDBC has delivered consistent long-term returns amid commodity market volatility. Over the past 5 years, the fund has returned over 9% cumulative compared to the Bloomberg Commodity Index's 6.3%. Investors benefit from the ETF's dynamic roll process which can help minimize negatives from contango.

ETF Radar View

The radar chart below shows the general characteristics of the ETF:

Top 3 Reasons to Invest in PDBC

1. Diversification: PDBC offers a broad exposure to various commodities in a single, convenient ETF structure, which reduces the risk of concentration in a single sector.

2. Inflation Hedge: Commodities often perform well during inflationary periods, protecting the purchasing power of your investment.

3. Tax Efficiency: The unique no complicated K-1 structure makes PDBC a tax-friendly option for investors.

Top 3 Reasons Not to Invest in PDBC

1. Market Volatility: Despite the diversification, commodity markets can be volatile, leading to significant price fluctuations.

2. Economic Sensitivity: Commodities are sensitive to global economic changes, including policy shifts and geopolitical events.

3. Specialized Investment: Investing in commodities requires understanding specific market dynamics, such as the structure of future contracts.

Your All-Access Pass to Commodities🎫

In closing, PDBC offers a unique blend of diversification, inflation protection, and tax efficiency, making it an attractive option for many investors. However, weighing these benefits against the inherent risks associated with commodity investments is essential.

The commodity markets can shift rapidly, so staying informed is key! Keep yourself engaged in ETF investments by signing up for the ETF UNO newsletter. Our goal is to provide valuable insights that help you navigate the ever-evolving landscape of ETFs. Remember, knowledge is power, especially when it comes to investing!

DISCLAIMER: This newsletter is for informational purposes only and does not constitute financial advice.