Invesco Agriculture Commodity Strategy No K-1 ETF

According to National Geographic, "Agriculture is the art and science of cultivating the soil, growing crops, and raising livestock. It includes the preparation of plant and animal products for people to use and their distribution to markets."

Not only does agriculture play a crucial role in economic growth and development, given it is the sole provider of food for the world's continuously growing population, but it's also one of the most powerful tools to eradicate extreme poverty and increase shared wealth, according to the World Bank. In 2020, agriculture, food, and related industries contributed over $1 trillion to the US gross domestic product (GDP)², accounting for a 5% share.³

Whether your goal is to hedge against food inflation, navigate geopolitical risk, position your portfolio for climate change, leverage the energy transition, or simply consider one of the most important sectors of the global economy, we believe that gaining exposure to agricultural commodities can offer an attractive solution.
 

Food inflation and geopolitical cover

Following Russia’s invasion of Ukraine in February 2022, several agricultural commodities rallied to multiyear highs or even record highs, given both countries are key players in the global grains trade. With no quick off-ramp in sight and persistent uncertainty around the war, agricultural commodities may see further upside going forward.

Climate change and energy transition

As the world transitions away from carbon, agricultural commodities could play an increasingly important role through rising ethanol and biodiesel demand. In addition, climate change impacts continue to unfold with extreme weather events becoming more frequent, leaving supply constraints and price volatility as common features of the agricultural markets. 

The fund is a broad sector-based solution and provides exposure to 11 grains, livestock, and soft commodities. The selected grains are wheat, Kansas City wheat, soybeans, and corn. The livestock group includes feeder cattle, live cattle, and lean hogs, and the softs are sugar, coffee, cocoa, and cotton. The fund will hold commodity-linked futures contracts for these components.

PDBA is actively managed by a seasoned team of portfolio managers with an average of over 20 years of industry experience as of August 2022. While the fund generally invests in the components included in its benchmark index, the DBIQ Diversified Agriculture Index Excess Return, portfolio managers have the ability to make active decisions to respond promptly to changes in the markets and address the dynamic nature of commodity forward curves. Three factors of the active component are: 

1. Contract selection – The fund utilizes additional fundamental overlay and liquidity analysis to select contract exposure combined with insights from the benchmark’s optimum yield methodology.⁴
   
   
2. Roll flexibility – Unlike the benchmark, which only rolls to new futures contracts the month before its expiration, PDBA has the flexibility to roll prior to the benchmark roll.
   
   
3. Weighting adjustments – Portfolio managers have the ability to overweight/underweight commodities vs. the benchmark, expressing a tactical view on future price action, while remaining within the required risk parameters.

While there should still be a potential upside for agricultural commodities, given persistent geopolitical uncertainty and weather risks, some headwinds to consider include:

• Positive developments in the Russo-Ukraine war
• Deterioration in US-China relations over Taiwan
• Improvement in weather conditions boosting yields
• Slowdown in green initiatives
• Stronger dollar (increases the cost of importing US goods)
• Broader macro risk-off moves