The S&P 500 remains 10% off the yearly high set in April and investors are weary of the future prospects of equities. As stocks struggle to regain their 2010 highs, another asset class has been quietly moving higher. A few select commodities have been flying under the radar and hitting new highs, despite the negativity towards investing at this time.
IN PICTURES: 9 Simple Investing Ratios You Need To Know

The Softies
The iPath Dow Jones-UBS Softs ETN (NYSE:JJS) is up 10% year-to-date and trading at the best level since it began trading in the middle of 2008. The ETN is composed of futures contracts on three commodities: coffee, cotton and sugar. All three of the components have been on a tear recently, helping push the ETF to the new highs. What makes the ETN even more attractive is the low correlation of 0.16 to the S&P 500, suggesting it trades almost independent of the U.S. stock market.

All three commodities in the JJS have their own specific ETNs that allow investors to concentrate on a single investment. The iPath Dow Jones-UBS Cotton ETN (NYSE:BAL) invests in cotton futures and is up 20% in 2010. The iPath Dow Jones-UBS Coffee ETN (NYSE:JO) invests in coffee futures and is up 36% in 2010. The iPath Dow Jones-UBS Sugar ETN (NYSE:SGG) invests in a sugar futures contract and is down 20% this year. SGG is interesting because it had more than doubled from January, 2009 through January, 2010 before falling over 50% to start 2010.

Food
Severe and unusual weather has left its mark on countries around the world, including massive floods in Pakistan and an unprecedented heat wave in Russia. The weather and increasing demand for food around the globe has pushed up the price of food commodities such as corn, wheat, soybeans and rice.

The iPath Dow Jones-UBS Agriculture ETN (NYSE:JJA) is invested in seven commodities, with nearly half of the allocation in corn and soybeans. Wheat makes up 18%, coffee 10%, soybean oil 9%, cotton 7% and sugar 6%. Year-to-date, the ETN is up 7%, but from the June low, JJA has gained over 30% and is at a fresh 23-month high. The annual expense ratio is 0.75%, which could be considered high, except JJA gives investors instant diversification into commodities without a futures account. (For related reading, see Commodities: The Portfolio Hedge.)

While there is no ETN for rice, wheat, or soybeans, there is an ETN that tracks the price of corn futures. The Teucrium Corn Fund (NYSE:CORN) invests in a basket of corn futures and since the low in late June is up 28%. The new fund does not trade a large amount of shares, but it should begin to attract more money as the price of corn increases.

Another alternative to CORN, that also offers exposure to soybeans and wheat, is the iPath Dow Jones-UBS Grains ETN (NYSE:JJG). The ETN is up 5% on the year, and is well off the highs set several years ago.

The Bottom Line
There are a number of reasons the softs and agricultural commodities have done well recently, but the main factor has been supply issues. The exceptional weather has created havoc around the world as civilizations struggle to get enough food to live. Unfortunately, this issue is not going away anytime soon, and the investments above will be a way to profit. (For more, see Cashing In On A Commodities Boom.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing Basics

    What is the Theory of Backwardation?

    Backwardation occurs when the futures price of a commodity is lower than its market price today.
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares FTSE RAFI Emerging Mkts

    Learn more about the PowerShares FTSE RAFI Emerging Markets ETF, a fundamentally weighted fund that tracks emerging market equities.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Cali AMT-Free Muni Bond

    Learn more about the iShares California AMT-Free Municipal Bond exchange-traded fund, a popular tax-advantaged ETF that dominates its category.
  4. Mutual Funds & ETFs

    ETF Analysis: SPDR S&P Emerging Markets Dividend

    Learn more about the SDPR S&P Emerging Markets Dividend Fund, a yield-focused exchange-traded fund tracking global emerging economies.
  5. Mutual Funds & ETFs

    ETF Analysis: First Trust Dow Jones Global Sel Div

    Find out about the First Trust Dow Jones Global Select Dividend Index Fund, and learn detailed information about characteristics and suitability of the fund.
  6. Mutual Funds & ETFs

    ETF Analysis: U.S 12 Month Natural Gas

    Learn about the United States 12 Month Natural Gas Fund, an exchange-traded fund that invests in 12-month futures contracts for natural gas.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Floating Rate Bond

    Explore detailed analysis and information of the iShares Floating Rate Bond ETF, and learn how to use this ETF as a defense against rising interest rates.
  8. Mutual Funds & ETFs

    ETF Analysis: ProShares UltraPro Short S&P500

    Find out information about the ProShares UltraPro Short S&P 500 exchange-traded fund, and learn detailed analysis of its characteristics and suitability.
  9. Mutual Funds & ETFs

    ETF Analysis: SPDR Barclays Investment Grd Fl Rt

    Learn more about the SPDR Barclays Investment Grade Floating Rate Fund, which tracks an index of highly rated floating debt securities.
  10. Mutual Funds & ETFs

    ETF Analysis: ALPS Medical Breakthroughs

    Learn more about a unique and innovative exchange-traded fund (ETF) in the biotechnology industry: the ALPS Medical Breakthroughs Fund.
RELATED TERMS
  1. Implied Volatility - IV

    The estimated volatility of a security's price.
  2. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  3. Equity

    The value of an asset less the value of all liabilities on that ...
  4. Derivative

    A security with a price that is dependent upon or derived from ...
  5. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  6. Inverse Transaction

    A transaction that can cancel out a forward contract that has ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!