INVESCO DB COMMODITY INDEX TRACKING FUND This information should be read in conjunction with the financial statements and
notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q (the
"Report"). This Report includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that involve substantial risks and uncertainties. The matters
discussed throughout this Report that are not historical facts are
forward-looking statements. These forward-looking statements are based on the
Fund's and Invesco Capital Management LLC's (the "Managing Owner") current
expectations, estimates and projections about the future results, performance,
prospects and opportunities of the Fund and the Fund's business and industry and
their beliefs and assumptions about future events and speak only as of the date
on which they are made. Words such as "anticipate," "expect," "intend," "plan,"
"believe," "seek," "outlook" and "estimate," as well as similar words and
phrases, signify forward-looking statements. Forward-looking statements are not
guarantees of future results. Future economic and industry trends that could
potentially impact the Fund and its performance are difficult to predict.
Conditions and important factors, risks and uncertainties in the markets for
financial instruments that the Fund trades, in the markets for related physical
commodities, in the legal and regulatory regimes applicable to the Managing
Owner, the Fund, and the Fund's service providers, in the broader economy and in
global politics may cause actual results to differ materially from those
expressed by such forward-looking statements. There can be no assurance that the
forward-looking statements included in this Report will prove to be accurate.
Factors that could cause results to differ from those expressed in the
forward-looking statements are subject to a number of risks, uncertainties and
other factors, including those described in the "Risk Factors" section of the
Fund's Prospectus and elsewhere in the Prospectus and in other
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Risks related to geopolitical conflict, including the on-going hostilities in
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Risks related to market volatility and fluctuations in the price of assets held by the Fund, including the imposition of trading limitations or trading halts, and the potential loss of investment;
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Risks that the market price of Shares will not correspond to NAV;
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Risks related to market competition;
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Risks related to the market conditions unique to futures contracts;
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Risks related to the impact of regulatory actions, such as position limits, accountability levels and daily limits; and
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Risks and uncertainty related to the ongoing COVID-19 pandemic and any other adverse public health developments.
You should not place undue reliance on any forward-looking statements. Except as expressly required by the Federal securities laws, the Fund and the Managing Owner undertake no obligation to publicly update or revise any forward-looking statements or the risks, uncertainties or other factors described in this Report, as a result of new information, future events or changed circumstances or for any other reason after the date of this Report.
Overview/Introduction
Invesco Capital Management LLC ("Invesco") has served as the managing owner (the
"Managing Owner"), commodity pool operator and commodity trading advisor of the
Fund since
The Fund seeks to track changes, whether positive or negative, in the level of
the DBIQ Optimum Yield Diversified Commodity Index Excess ReturnTM (the "Index")
over time, plus the excess, if any, of the sum of the Fund's interest income
from its holdings of United States Treasury Obligations ("Treasury Income"),
dividends from its holdings in money market mutual funds (affiliated or
otherwise) ("Money Market Income") and dividends or distributions of capital
gains from its holdings of T-Bill ETFs (as defined below) ("T-Bill ETF Income")
over the expenses of the Fund. The Fund invests in futures contracts in an
attempt to track its Index. The Index is intended to reflect the change in
market value of the commodity sector. The commodities comprising the Index are
Light Sweet Crude Oil, Ultra-Low Sulphur Diesel (also commonly known as Heating
Oil), Aluminum, Gold, Corn, Wheat, Brent Crude Oil, Copper Grade A, Natural Gas,
RBOB Gasoline (reformulated gasoline blendstock for oxygen blending, or "RBOB"),
Silver, Soybeans, Sugar and Zinc (each, an "Index Commodity," and collectively,
the "
The Fund may invest directly in
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Fund holds as collateral United States Treasury Obligations, money market mutual funds and T-Bill ETFs (affiliated or otherwise), if any, for margin and/or cash management purposes. While the Fund's performance reflects the appreciation and depreciation of those holdings, the Fund's performance, whether positive or negative, is driven primarily by its strategy of trading futures contracts with the aim of seeking to track the Index.
The Fund pursues its investment objective by investing in a portfolio of
exchange-traded commodity futures contracts that expire in a specific month and
trade on a specific exchange (the "Index Contracts") in the
The CFTC and certain futures exchanges impose position limits on futures
contracts, including on Index Contracts. As the Fund approaches or reaches
position limits with respect to an Index Commodity, the Fund may commence
investing in Index Contracts that reference other
The Managing Owner may determine to invest in other futures contracts if at any time it is impractical or inefficient to gain full or partial exposure to an Index Commodity through the use of Index Contracts. These other futures contracts may or may not be based on an Index Commodity. When they are not, the Managing Owner may seek to select futures contracts that it reasonably believes tend to exhibit trading prices that correlate with an Index Contract.
The Shares are intended to provide investment results that generally correspond to the changes, positive or negative, in the levels of the Index over time. The value of the Shares is expected to fluctuate in relation to changes in the value of the Fund's portfolio. The market price of the Shares may not be identical to the NAV per Share, but these two valuations are expected to be very close.
Index Description
The Managing Owner pays
These fees constitute a portion of the routine operational, administrative and other ordinary expenses which are paid out of the management fee paid to the Managing Owner ("Management Fee") and are not charged to or reimbursed by the Fund.
Neither the Managing Owner nor any affiliate of the Managing Owner has any rights to influence the selection of the futures contracts underlying the Index. The Managing Owner has entered into a license agreement with the Index Sponsor to use the Index.
The Fund is not sponsored or endorsed by Deutsche Bank AG,
NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE INDEX, WARRANTS OR GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA INCLUDED THEREIN AND SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE INDEX, MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY INVESCO CAPITAL MANAGEMENT LLC FROM THE USE OF THE INDEX OR ANY DATA INCLUDED THEREIN. NEITHER DEUTSCHE BANK NOR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE INDEX, MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DEUTSCHE BANK OR ANY OTHER PARTY INVOLVED IN, OR RELATED TO, MAKING OR COMPILING THE INDEX HAVE ANY LIABILITY FOR DIRECT, INDIRECT, PUNITIVE, SPECIAL,
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CONSEQUENTIAL OR ANY OTHER DAMAGES OR LOSSES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. EXCEPT AS EXPRESSLY PROVIDED TO THE CONTRARY, THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN DEUTSCHE BANK AND INVESCO CAPITAL MANAGEMENT LLC.
No purchaser, seller or holder of the Shares of this Fund, or any other person or entity, should use or refer to any Deutsche Bank trade name, trademark or service mark to sponsor, endorse, market or promote this Fund without first contacting Deutsche Bank to determine whether Deutsche Bank's permission is required. Under no circumstances may any person or entity claim any affiliation with Deutsche Bank without the written permission of Deutsche Bank.
The Index Sponsor may from time-to-time subcontract the provision of the calculation and other services described below to one or more third parties.
The Index is composed of notional amounts of each of the underlying
The Index is rebalanced annually in November to ensure that each of the
The following table reflects the Fund weights of each Index Commodity, or
related futures contracts, as applicable, as of
Index Commodity Fund Weight (%) Aluminum 4.60 % Brent Crude Oil 11.47 Copper Grade A 5.10 Corn 5.67 Gold 9.96 Light Sweet Crude Oil (WTI) 11.50 Natural Gas 2.84 RBOB Gasoline 11.82 Silver 2.43 Soybeans 5.90 Sugar 7.75 Ultra-Low Sulphur Diesel 11.21 Wheat 5.07 Zinc 4.68 Closing Level as ofMarch 31, 2023 : 100.00 %
Please see http://www.invesco.com/ETFs with respect to the most recently available weighted composition of the Fund and the composition of the Index.
Market Risk
Trading in futures contracts involves the Fund entering into contractual commitments to purchase a particular commodity at a specified date and price. The market risk associated with the Fund's commitments to purchase commodities is limited to the gross or face amount of the contracts held.
The Fund's exposure to market risk is also influenced by a number of factors including the volatility of interest rates and foreign currency exchange rates, the liquidity of the markets in which the contracts are traded and the relationships among the contracts held. The inherent uncertainty of the Fund's trading as well as the development of drastic market occurrences could ultimately lead to a loss of all or substantially all of the investors' capital.
Credit Risk
When the Fund enters into futures contracts, the Fund is exposed to credit risk
that the counterparty to the contract will not meet its obligations. The
counterparty for futures contracts traded on
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The Commodity Broker, when acting as the Fund's futures commission merchant ("FCM") in accepting orders for the purchase or sale of domestic futures contracts, is required by CFTC regulations to separately account for and segregate as belonging to the Fund all assets of the Fund relating to domestic futures trading. The Commodity Broker is not allowed to commingle such assets with other assets of the Commodity Broker. In addition, CFTC regulations also require the Commodity Broker to hold in a secure account assets of the Fund related to foreign futures trading. While these legal requirements are designed to protect the customers of FCMs, a failure by the Commodity Broker to comply with those requirements would be likely to have a material adverse effect on the Fund in the event that the Commodity Broker became insolvent or suffered other financial distress.
Liquidity
The Fund's entire source of capital is derived from the Fund's offering of
Shares to Authorized Participants. The Fund in turn allocates its net assets to
commodity futures trading. A significant portion of the NAV is held in
The Fund's commodity futures contracts may be subject to periods of illiquidity
because of market conditions, regulatory considerations or for other reasons.
For example,
Because the Fund trades futures contracts, its capital is at risk due to changes in the value of futures contracts (market risk) or the inability of counterparties (including the Commodity Broker and/or exchange clearinghouses) to perform under the terms of the contracts (credit risk).
On any business day, an Authorized Participant may place an order with the
Transfer Agent to redeem one or more blocks of 50,000 Shares ("Creation Units").
Redemption orders must be placed by
Unless otherwise agreed to by the Managing Owner and the Authorized Participant
as provided in the next sentence, by placing a redemption order, an Authorized
Participant agrees to deliver the Creation Units to be redeemed through DTC's
book-entry system to the Fund no later than the redemption order settlement date
as of
Redemption orders may be placed either (i) through the Continuous Net Settlement
("CNS") clearing processes of the
The Fund is unaware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way.
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Capital Resources
The Fund does not have any material cash requirements as of the end of the latest fiscal period. The Fund is unaware of any known material trends, favorable or unfavorable, in the Fund's capital resources.
In the normal course of its business, the Fund is a party to financial instruments with off-balance sheet risk. The term "off-balance sheet risk" refers to an unrecorded potential liability that, even though it does not appear on the balance sheet, may result in a future obligation or loss. The financial instruments used by the Fund are commodity futures, the values of which are based upon an underlying asset and generally represent future commitments which have a reasonable possibility to be settled in cash or through physical delivery. The financial instruments are traded on an exchange and are standardized contracts.
The Fund has not utilized, nor does it expect to utilize in the future, special purpose entities to facilitate off-balance sheet financing arrangements and has no loan guarantee arrangements or off-balance sheet arrangements of any kind, other than agreements entered into in the normal course of business noted above, which may include indemnification provisions related to certain risks service providers undertake in providing services to the Fund. While the Fund's exposure under such indemnification provisions cannot be estimated, these general business indemnifications are not expected to have a material impact on the Fund's financial position. The Managing Owner expects the risk of loss relating to indemnification to be remote.
The Fund has financial obligations to the Managing Owner and the Commodity Broker under the Trust Agreement and its agreement with the Commodity Broker (the "Commodity Broker Agreement"), respectively. Management Fee payments made to the Managing Owner, pursuant to the Trust Agreement, are calculated as a fixed percentage of the Fund's NAV. Commission payments to the Commodity Broker, pursuant to the Commodity Broker Agreement, are on a contract-by-contract, or round-turn, basis. As such, the Managing Owner cannot anticipate the number of payments that will be required under these arrangements for future periods as NAVs and trading activity will not be known until a future date. The Fund's agreement with the Commodity Broker may be terminated by either party for various reasons. All Management Fees and commission payments are paid to the Managing Owner and the Commodity Broker, respectively.
Cash Flows
A primary cash flow activity of the Fund is to raise capital from Authorized
Participants through the issuance of Shares. This cash is used to invest in
As of the date of this Report, each of
Operating Activities
Net cash flow provided by (used in) operating activities was
During the three months ended
Financing Activities
The Fund's net cash flow provided by (used in) financing activities was
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Results of Operations
FOR THE THREE MONTHS ENDED
The following graphs illustrate the percentage changes in (i) the market price of the Shares (as reflected by the line "Market"), (ii) the Fund's NAV (as reflected by the line "NAV"), and (iii) the closing levels of the Index (as reflected by the line "DBIQ Opt Yield Diversified Comm Index ER"). Whenever the Treasury Income, Money Market Income and T-Bill ETF Income, if any, earned by the Fund exceeds Fund expenses, the price of the Shares generally exceeds the level of the Index primarily because the Share price reflects Treasury Income, Money Market Income and T-Bill ETF Income from the Fund's collateral holdings whereas the Index does not consider such income. There can be no assurances that the price of the Shares or the Fund's NAV will exceed the Index levels.
No representation is being made that the Index will or is likely to achieve closing levels consistent with or similar to those set forth herein. Similarly, no representation is being made that the Fund will generate profits or losses similar to the Fund's past performance or changes in the Index closing levels.
COMPARISON OF MARKET, NAV AND DBIQ OPTIMUM YIELD DIVERSIFIED COMMODITY INDEX ER
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
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NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES,
POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND'S FUTURE
PERFORMANCE.
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[[Image Removed: img113032776_1.jpg]]
NEITHER THE PAST PERFORMANCE OF THE FUND NOR THE PRIOR INDEX LEVELS AND CHANGES,
POSITIVE OR NEGATIVE, SHOULD BE TAKEN AS AN INDICATION OF THE FUND'S FUTURE
PERFORMANCE.
Performance Summary
This Report covers the three months ended
The Index is intended to reflect the change in market value of the
The section "Summary of the DBIQ-OY Diversified TR™ and Underlying Index
Commodity Returns for the Three Months Ended
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Summary of the DBIQ-OY Diversified TR™ and Underlying Index Commodity
Returns for the Three Months Ended March 31, 2023 and 2022
AGGREGATE RETURNS FOR INDICES IN THE
DBIQ-OY DIVERSIFIED TR™
Three Months Ended
March 31,
Underlying Index 2023 2022
DB Aluminum Indices 1.12 % 24.39 %
DB Brent Crude Oil Indices (3.30 ) 35.56
DB Copper Grade A Indices 8.66 7.03
DB Corn Indices (6.85 ) 23.80
DB Gold Indices 8.23 6.49
DB Light Crude Oil Indices (3.69 ) 28.01
DB Natural Gas Indices (42.96 ) 60.17
DB RBOB Gasoline Indices (2.44 ) 26.27
DB Silver Indices 0.58 7.51
DB Soybeans Indices (5.75 ) 12.00
DB Sugar Indices 22.84 5.42
DB Ultra-Low Sulphur Diesel Indices (11.85 ) 41.89
DB Wheat Indices (11.24 ) 31.17
DB Zinc Indices 0.55 20.31
AGGREGATE RETURNS (3.38 )% 26.11 %
If the Fund's Treasury Income, Money Market Income and T-Bill ETF Income were to exceed the Fund's fees and expenses, the aggregate return on an investment in the Fund would be expected to outperform the Index and underperform the DBIQ-OY Diversified TR™. The only difference between (i) the Index (the "Excess Return Index") and (ii) the DBIQ-OY Diversified TR™ (the "Total Return Index") is that the Excess Return Index does not include interest income from fixed income securities while the Total Return Index does include such a component. Thus, the difference between the Excess Return Index and the Total Return Index is attributable entirely to the interest income attributable to the fixed income securities reflected in the Total Return Index. The Total Return Index does not actually hold any fixed income securities. If the Fund's Treasury Income, Money Market Income and T-Bill ETF Income, if any, exceeds the Fund's fees and expenses, then the amount of such excess is expected to be distributed periodically. The market price of the Shares is expected to closely track the Excess Return Index. The aggregate return on an investment in the Fund over any period is the sum of the capital appreciation or depreciation of the Shares over the period, plus the amount of any distributions during the period. Consequently, the Fund's aggregate return is expected to outperform the Excess Return Index by the amount of the excess, if any, of the Fund's Treasury Income, Money Market Income and T-Bill ETF Income over its fees and expenses. As a result of the Fund's fees and expenses, however, the aggregate return on the Fund is expected to underperform the Total Return Index. If the Fund's fees and expenses were to exceed the Fund's Treasury Income, Money Market Income and T-Bill ETF Income, if any, the aggregate return on an investment in the Fund is expected to underperform the Excess Return Index.
FOR THE THREE MONTHS ENDED
Fund Share Price Performance
For the three months ended
Commodities performed negatively in the first quarter of 2023, largely driven by
losses in the energy sector. All five energy commodities detracted from the
Fund's performance with natural gas and NY Harbor Ultra Low Sulfur Diesel (ULSD)
accounting for the bulk of it.
For the three months ended
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on
Commodities had an exceptionally strong start to 2022, with the Fund posting its largest quarterly gain since its inception. As the geopolitical crisis betweenRussia andUkraine unfolded, and already fundamentally tight commodities markets were further challenged, investors turned to the asset class for both geopolitical cover and inflation hedging purposes. Given both nations' key roles as commodities powerhouses, the ongoing military conflict and increasing isolation ofRussia , following western sanctions and self-sanctioning against the country, disrupted the flow of goods and sent prices across all commodity sectors to multi-year, and even historic highs.
Fund Share Net Asset Performance
For the three months ended
Net income (loss) for the three months ended
For the three months ended
Net income (loss) for the three months ended
Critical Accounting Estimates
The financial statements and accompanying notes are prepared in accordance with
There were no material estimates, which involve a significant level of estimation uncertainty and had or are reasonably likely to have had a material impact on the Fund's financial condition, used in the preparation of these financial statements.
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