Market Overview

Ditch The K-1 With This New Commodities ETF

Ditch The K-1 With This New Commodities ETF

The K-1 is the tax form used to report dividends, earnings and losses from entities structured as partnerships, a structure that applies to an array of commodities investments — including exchange-traded products.

Many investors also view the K-1 as a tax time nuisance. In recent years, issuers of commodities have responded by introducing products that eliminate the need for K-1 forms. The latest member of that group is the USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (NYSE: SDCI), which debuted Thursday.

What Happened

The new USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund is an actively managed fund that benchmarks to the SummerHaven Dynamic Commodity Index. The United States Commodity Index Fund (NYSE: USCI) is a passively managed fund that tracks that widely followed commodities index.

“USCI eschews rolling front month contracts, which can lead to underperformance, especially in a contangoed market, rebalancing each month and selecting the most-backdated contracts and then the seven highest-returning contracts,” according to ETF Trends.

Why It's Important

SDCI will typically hold 14 commodities culled from a selection universe of 27 across six major commodities segments: energy, precious metals, industrial metals, grains, livestock and softs. The new ETF will rebalance on a monthly basis.

For the month of May, SDCI's holding include crude oil, cocoa, nickel, gas oil, heating, zinc, gold, copper, tin, unleaded gasoline, live cattle and soybean meal.

Corn, cotton, platinum and silver are among the commodities in SDCI's selection universe that are not currently on the new ETF's roster.

What's Next

SDCI debuts at a time when commodities and the related ETFs have been garnering renewed attention amid weakness in the dollar. The new ETF could gain traction with advisors and investors because of the no-K-1 feature. SDCI has an annual fee of 0.8 percent, or $80 on a $10,000 investment.

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