Dba Case

DBA was created in response to the demand of investors that wanted to more easily capture the benefits that agricultural commodities have traditionally played in portfolio management. That benefit is primarily seen in the lack of correlation between commodities returns and the returns on the equity markets. A 2006 study out of Yale found that “from 1959 through 2004, commodities generally moved independently of the broader stock market. The long-term average correlation was close to zero between 1959 and 2004” (Time to Ditch Commodities?). This lack of correlation is generally seen as a good thing when added to a portfolio of equities, as returns on the two asset classes would generally be independent of each other, and therefore could provide buffers if one of those classes did particularly poor for a period. Corn in particular has been a historically good commodity to own, as the correlation between Corn prices and SPY since 2001 has only been .04 (Analysis of data from Farmdoc.Illinois.Edu). Added to this virtually non-existent correlation, Corn has had an average monthly return of 0.97% since 2001, compared to 0.19% for SPY. Because of this low correlation and high average return, corn looks like a great asset to own in your portfolio, however actually buying and trading corn futures is not always practical to the average investor. While Corn has been a nice commodity to have over the past 10 years, Live Cattle has been doing particularly well in 2011, with prices up 13% from the beginning of the year. This phenomenon bodes well for continued prices increases in 2012, as “the rally is also offsetting the cost of animal feed, given big spikes in corn and soybeans last year” (Meat Prices Continue Their Bull Run). In a fortuitous cycle, increase in Corn and Soybean lead to an increase in Live Cattle prices, all of which are components of DBA. Because of these benefits, DBA was created to offer investors an efficient way to own assets reflective of the agricultural