Commodity-based ETF

Deutsche Bank has introduced the first commodity-based Exchange Traded Funds (ETFs) which started trading last Friday on the American Stock Exchange. Its ticker symbol is DBC.

The Deutsche Bank Commodity Index Tracking Fund, DBC, isn't technically a true ETF because it's structured as a commodity pool rather than a registered investment company, although it resembles an ETF in many ways. It marks the first time an ETF-like product will use derivatives in its portfolio to provide exposure to commodities. DBC is designed to follow the performance of the Deutsche Bank Liquid Commodity Index - Excess Return, which is based on futures contracts on crude oil, heating oil, gold, aluminum, corn and wheat. The two energy futures will be rolled monthly, and the others annually. Other less-liquid commodities such as coffee, sugar and livestock aren't included in the index. Aside from investing in futures to track the commodities index, the ETF will also hold a portfolio of high-quality bonds.

According to the prospectus, DBC has an expense ratio of 1.5%, which includes a 0.95% management fee. This is quite high as compared to 0.3-o.5% for many index-based funds but the expense ratio is expected to be offset by the yield from the fixed-income portion of the portfolio, which will earn a rate of interest based on the yield on three-month U.S. Treasury bills (currently about 4.27%).

The introductory price of DBC last Friday was $23 and today it finished trading at $23.40.