Here's Your Chance at Commodities

 | Apr 05, 2012 | 10:00 AM EDT
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This article originally appeared earlier today on ETF Profits.

Wednesday was a brutal day across Wall Street. Investors, once again caught a case of the eurozone blues, rushed for the exits of risky assets across the board. News that the U.S. economy has continued adding jobs wasn't enough to lift sentiment as equity markets around the world took one big step back after turning in a stellar first quarter.

Stock indices were drenched in red Wednesday, but they fared relatively well compared with most commodities, which saw one of their worst days in several months. Natural resources posted big declines across the board, gold futures hit a 12-week low and silver prices fell almost 7% on the day. Oil and copper similarly declined.

The big drop-offs have no doubt caught the attention of opportunistic investors sensing a potential opportunity to get into an attractive asset class at a discount. Commodities have encountered a bit of turbulence lately, and they could be positioned to storm back in coming sessions if sentiment improves. The general outlook for natural-resource prices remains bullish. Experts generally agree that the economy is in the middle of a long-term commodity uptrend, bolstered by favorable demographics in emerging markets and other factors.

Investors looking to gain access to commodity prices have no shortage of ETF options, with dozens of products offering both broad-based and extremely focused exposure to natural-resource prices. Most of the products out there hold futures contracts or stocks of commodity-intensive companies, and as such they will tend to be quite volatile -- as evidenced by days like Wednesday. Today I'm going to highlight two options in this family with which you're probably not familiar, but which represent pretty interesting opportunities.

IndexIQ Global Resources ETF (GRES): This ETF is one of many that takes an "indirect" approach to commodity exposure, investing in stocks of companies engaged in the production and extraction of natural resources. But GRES is unique in that it also features a hedge against global equity markets, which essentially serves to isolate the component of commodity-intensive stock performance related to commodity prices.

In other words, GRES offers a way to bet on the performance of commodity-producing companies relative to broad global equity markets. When commodity producers are surging, this ETF should perform well. Though the strength of the correlation may vary, GRES should generally deliver a low-volatility way to bet on commodity prices -- a combination that can be hard to come by.

WisdomTree Dreyfus Commodity Currency Fund (CCX): This ETF offers exposure to currencies of commodity-intensive economies, investing in a basket of developed and emerging markets. Again, this represents an indirect route to commodity exposure, but it can result in access that won't be subject to the frustrating nuances of futures-based strategies.

Commodity bull markets generally give a boost to the currencies of the countries that are responsible for material portions of global supply, as strong demand for the raw materials results in strong demand for the related currency. There are, of course, multiple factors that can impact exchange rates, and over the short term CCX won't always reflect movements in commodity prices perfectly. But this ETF offers a way to participate in longer-term commodity rallies with lower volatility than futures-based funds, which can be quite appealing to many investors out there.


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