In the first quarter of 2024, Invesco DB Base Metals Fund reported a net asset value of $6.6 million and discussed financial condition and results of operations in their management’s discussion. They also addressed market risk, controls and procedures, legal proceedings, risk factors, unregistered sales of equity securities, defaults on senior securities, mine safety disclosures, and other information.
Company Overview
Invesco DB Base Metals Fund is a commodity pool that trades futures contracts in aluminum, copper, and zinc with the goal of tracking the DBIQ Optimum Yield Industrial Metals Index. The Fund was formed in 2006 and is managed by Invesco Capital Management LLC.
The Fund has returned -1.86% over the past three months based on its net asset value (NAV). This was driven by falling aluminum and zinc futures prices, partially offset by rising copper futures. The Fund’s market price per share has decreased from $18.31 to $17.95 over the quarter.
Revenue and Profit Analysis
The Fund had a net loss of $2.2 million over the past three months. This loss was caused by:
The unrealized trading losses show that the value of the Fund’s open futures positions has declined, likely driven by the drop in aluminum and zinc futures. The realized trading loss was small, indicating that trading activity was limited over the period.
Balance Sheet and Liquidity
The Fund meets asset margin requirements and collateral obligations to its futures broker by holding U.S. Treasuries, money market funds, and cash. These liquid assets have ranged between 90-95% of its net assets over the past two years.
The Fund has no long-term debt obligations. Its primary financial obligations are management fees (0.75% of assets annually) and futures broker commissions. These fees are operating expenses paid from the management fee.
The Fund’s shares can be redeemed daily by authorized participants and has averaged $15-30 million of redemptions per month over the past two years. This demonstrates adequate liquidity to fund expected near-term obligations.
Market Outlook
Industrial metals markets face ongoing volatility driven by economic uncertainty and geopolitics. However, tight supplies and declining inventories provide support for prices.
While aluminum and zinc futures declined over the quarter, copper gained on smelting capacity shortfalls and supply cuts. Going forward, prices may strengthen if demand stabilizes and production disruptions persist.
The Fund aims to track its metals index benchmark regardless of market direction. However, its recent losses highlight the challenges of navigating near-term volatility. Maintaining portfolio diversification and utilizing risk management strategies will be key.