DJCI In Depth: The Five Minute Guide To The Commodity Total Return ETN

There is no argument that the evolution of the ETF industry has democratized an asset class that was once hard-to-reach by the average investor. With roughly 150 options, investors can now gain cheap and easy access to nearly every corner of the commodity universe. And while there are a number of ETFs that offer access to a single commodity, some investors prefer to have broad-based exposure to the entire space. Enter the UBS AG Linked to the Dow Jones-UBS Commodity Index Total Return (NYSEARCA:DJCI), a product from UBS that offers diversified exposure to a basket of 19 different futures contracts. It’s unique weighting methodology combined with its attractively low price tag certainly warrants investors to take a closer look [for more commodity news and analysis subscribe to our free newsletter].


Vital Stats

Here’s a quick overview of the basics of DJCI:

Issuer: UBS
Index: Dow Jones-UBS Commodity Index Total Return
Number of Commodities: 19
Largest Allocation:Natural Gas (10.8%)
Inception Date: October 28, 2009
Maturity Date: October 31, 2039
Expense Ratio: 0.50%
Assets: $73.5 million (as of 10/22/2012)
Structure: ETN

Under The Hood

DJCI seeks to replicate the Dow Jones-UBS Commodity Index Total Return, a benchmark that consists of 19 different commodity futures contracts. The base weights for the component futures contracts are presented in the following table:

Natural Gas 10.77%
Crude Oil (Brent & WTI) 15.00%
Unleaded Gasoline 3.41%
Heating Oil 3.46%
Live Cattle 3.63%
Lean Hogs 2.11%
Wheat 4.96%
Corn 6.67%
Soybeans 7.08%
Soybean Oil 3.37%
Aluminum 5.88%
Copper 7.06%
Zinc 3.12%
Nickel 2.58%
Gold 9.79%
Silver 2.77%
Sugar 3.76%
Cotton 2.00%
Coffee 2.57%

The nature of the underlying index ensures that investors in UBS AG Linked to the Dow Jones-UBS Commodity Index Total Return (NYSEARCA:DJCI) have broad-based exposure to commodities, including energyprecious metalsagriculture, and industrial metals. There are a few commodities that are not found in the DJCI portfolio, including platinum, palladium, cocoa, lead, tin, and timber.

Noteworthy Features

There are several noteworthy features of DJCI, beginning with the structure of this product. As an ETN, DJCI exposes investors to the credit risk of the issuing institution, which may scare some away. But it’s important to note that there are a number of potential benefits to the ETN structure when it comes to commodity exposure as well, including the ability to avoid tracking error and brokerage fees, which can become significant in futures-based strategies [see also What Is Contango?].

Like all broad-based commodity ETPs, UBS AG Linked to the Dow Jones-UBS Commodity Index Total Return (NYSEARCA:DJCI) offers exposure not to spot commodity prices, but to an index comprised of exchange-traded futures contracts. As such, it is important to note that the slope of the futures curve can impact the returns realized by this ETN, and that returns realized can lag behind the hypothetical return on spot prices.

Finally, note the expense ratio of DJCI; at just 0.50%, this product is one of the most cost efficient commodity ETPs on the market. In fact, this ETN is linked to the same index as the popular iPath Dow Jones UBS Commodity Index Total Return (NYSEARCA:DJP), but charges 0.25% less than that fund [see also For Long Term Investors: The Cheapest ETF for Every Commodity].

How To Use

DJCI can be used in a number of ways, including as a means for establishing cheap, low maintenance exposure to commodities within a long-term, buy-and-hold portfolio. Because this instrument is rather blunt–it includes 19 different commodities–those looking to bet on movements of a specific natural resource may want to use the more targeted products out there [see also All About The United States Brent Oil Fund, LP (NYSEARCA:BNO)].

DJCI can also be useful as a short-term trading tool for investors seeking to capitalize on short-term mispricings in the commodity market.

This article was originally written by Daniela Pylypczak, and posted on CommodityHQ.