ETF NEWS 02/08/2006

Although the timing was somewhat poor with this week’s sell off in commodities, a new Exchange Traded Fund (ETF) has hit the market that deserves to be checked out. It is the Deutsche Bank Commodity Index Tracking Fund (DBC).

This ETF uses futures contracts to mirror the performance of the Deutsche Bank Liquid Commodity Index, which is tied to crude oil, heating oil, gold, aluminum, corn and wheat. This is significant because it is the first time there has been an ETF based on futures contracts.

The Deutsche Bank tracking index has base weights of 35% crude oil, 20% heating oil, 12.5% aluminum, 10% gold, and 11.25% each in corn and wheat. The index is rebalanced each November. Short-term Treasury bills provide collateral for the futures. The fixed-income portion of the portfolio generates yield, which according to Deutsche Bank could be used to offset fees.

One thing I don’t like about this new ETF is its relatively high fees. With an expense ratio of 1.5%, it is high compared to other ETFs. But because of the yield from the fixed-income portion of the portfolio, these fees are somewhat offset.

This new fund is bound to cause the creation of more new and innovative ETF tools in the near future, and that is all good news for investors. Now I am NOT recommending that you buy this commodity fund right now, so don’t go out and call your broker. But what I am saying is that Wall Street is finally realizing what we’ve been saying for the past several years now — the ETF revolution is here to stay, and it’s getting stronger nearly every day.