By Alex Rosen
Strategy
BCD seeks to invest in futures contracts similar to the Bloomberg Commodity Index 3 Month Forward. Additionally, uninvested collateral is actively managed and invested in short term government and corporate debt.
Proprietary ETF Grades
Proprietary Technical Ratings
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Short-Term (next 3 months): F
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Long-Term (next 12 months): F
Holding Analysis
BCD holds 23 individual futures contracts. The top ten holdings account for two thirds of the total fund investments. The largest holdings are Gold futures at 13.75%, Natural Gas at 12.75%, WTI Crude at 7.5% and Brent Crude at 6.67%. By sector, the largest holdings are agriculture at 33%, energy at 33% and precious metals at 17%.
All information is from 9/31/2022. The fund rebalances quarterly, but the new holdings are not yet publicly available.
Strengths
Investing in futures contracts is always a risky endeavor. With BCD, contracts are typically locked in for 3 months, and in that time anything can happen. When locking in contracts, it’s a good idea to spread out the risk across sectors, and BCD has done that.
With a blend of holdings in both volatile futures such as oil and gas, combined with relatively stable commodities like gold and silver, BCD has done a nice job of capturing the upside, while also somewhat guarding itself against significant losses. As a result, it has average risk and high reward.
Additionally the fact that uninvested capital does not just sit idly by but rather is invested in government and corporate debt is very appealing.
In a year (2022) when markets were down 10-20% across the board, BCD managed to return a profit of 12%, suggesting that the index seems to know what it is doing.
Weaknesses
The very same things that make BCD attractive in a downside market, hold it back in an upside market. BCD’s blend of volatile and stable futures contracts prevent it from fully capturing upside gains. A single futures fund like ProShares K-1 Free Crude Oil Strategy ETF (OILK), which only tracks oil futures, is fully able to capture an oil boom without having to worry about other commodities.
In short, BCD’s diversified model keeps it from getting too high and going too low
Opportunities
Investors who are looking for exposure to commodities futures but are not too bullish on a single sector will do well to consider this fund. The “put some money into multiple baskets” model combined with the “invest the leftovers in debt instruments” makes it an appealing futures fund. BCD is a broad based ETF covering multiple sectors, and has the potential to capture some of the upside without overloading on the downside.
Threats
Locking into anything for three months can be a scary proposition. In a time where the average attention span is less than 3 seconds, committing to a three month contract can seem like an eternity. What happens if suddenly the price of soy skyrockets due to a drought in Brazil, and you are locked in to a contract that did not foresee that? This is not a one day buy and sell fund, it is a longer hold strategy, and that isn’t for everyone.
Conclusions
ETF Quality Opinion
BCD holds a basket of futures contracts across multiple sectors. It invests the excess capital in debt instruments. It does not overweight any one sector, nor does it hold any individual contracts. BCD maintains a low expense ratio (.29%) and does what it promises. This makes it in our opinion a high quality ETF.
ETF Investment Opinion
BCD has built a model that captures some of the upside while also limiting the downside. It isn’t always going to come out on top, but it also isn’t going to completely collapse. As a result we rate BCD a Hold for now, but with the caveat that it should be reviewed regularly to see what the new holdings are.
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