10-K: Invesco DB Agriculture Fund Reports Annual Results for Fiscal Year 2023

Invesco DB Agriculture Fund's 2023 annual report details its performance, holdings, and financial activities, highlighting a net income of $60.6 million and a 7.59% total return on a NAV basis.

Summary

• The Invesco DB Agriculture Fund (DBA) is a commodity pool that seeks to track the DBIQ Diversified Agriculture Index Excess Return.
• The fund invests in futures contracts on agricultural commodities such as corn, soybeans, wheat, sugar, cocoa, coffee, cotton, live cattle, feeder cattle, and lean hogs.
• The fund also holds U.S. Treasury obligations, money market mutual funds, and T-Bill ETFs as collateral.
• For the year ended December 31, 2023, the fund reported a net income of $60.6 million.
• The fund's net asset value (NAV) per share increased from $20.16 to $20.74 during 2023.
• The fund paid a distribution of $0.96045 per share on December 22, 2023.
• The total return for the fund on a market value basis was +7.58% for 2023.
• The fund's performance is primarily driven by its strategy of trading futures contracts to track the index.
• The fund's average total charges paid to the Commodity Broker were less than $7.00 per round-turn trade for the years ended December 31, 2023, 2022 and 2021.

Sentiment

Score: 7

Explanation: The document presents a positive financial performance for the year, with increased NAV and a positive total return. However, it also highlights various risks and challenges inherent in commodity trading, which tempers the overall sentiment.

Positives

• The fund achieved a positive net income of $60.6 million in 2023.
• The fund's NAV per share increased during the year.
• The fund provided a positive total return for investors.
• The fund paid a distribution to shareholders.
• The fund's strategy of tracking the DBIQ Diversified Agriculture Index Excess Return appears to be effective.

Negatives

• The fund's performance is subject to the volatility of commodity futures markets.
• The fund's returns can be affected by market conditions when replacing expiring futures contracts.
• The fund is subject to position limits imposed by the CFTC and futures exchanges.
• The fund's expenses could deplete its assets over time if investment performance is not favorable.
• The fund is not actively managed and tracks the index during periods in which the index is flat or declining.

Risks

• The fund's trading of futures contracts takes place in volatile markets.
• The fund is subject to fees and expenses that could impact returns.
• The fund is subject to position limits that could restrict its ability to trade.
• The fund's performance may not always track the index.
• Disruptions in the ability to create or redeem Creation Units may adversely affect investors.
• Conflicts of interest may exist between the Managing Owner and the Shareholders.
• The fund's NAV may not always correspond to the market price of the Shares.
• Shareholders will be subject to taxation on their allocable share of the fund's taxable income.
• International armed conflicts may result in market volatility that could adversely affect the fund's performance.
• Pandemics and other public health emergencies could disrupt the global economy and adversely impact the fund's performance.
• The effect of market disruptions and government interventions are unpredictable and may have an adverse effect on the value of your shares.
• An investment in the shares may be adversely affected by competition from other methods of investing in commodities.
• The NAV calculation of the fund may be overstated or understated due to the valuation method employed when a settlement price is not available on the date of NAV calculation.
• Fund closures and trading halts may impact the price of shares.
• Margin requirements and risk limits for futures contracts may limit the fund's ability to achieve sufficient exposure.
• Trading limitations could be imposed on the fund.
• The fund may not provide a diversification benefit to investments in other asset classes.
• The fund's returns from futures trading will be affected by market conditions when replacing expiring futures contracts.
• The fund's performance may not always replicate the changes in the levels of its index.
• Fewer representative commodities may result in greater index volatility.
• Unusually long peak-to-valley drawdown periods with respect to the index may be reflected in equally long peak-to-valley drawdown periods with respect to the performance of the shares.
• Position limits and other potential limitations on futures trading may restrict the creation of creation units and the operation of the fund.
• Failure of FCMs or commodity brokers to segregate assets may cause losses for the fund.
• The fund's performance could be adversely affected if the commodity broker reduces its internal risk limits for the fund.
• Regulatory changes or actions may alter the operations and profitability of the fund.
• The fund and the managing owner are subject to extensive legal and regulatory requirements.
• Shareholders will be subject to taxation on their allocable share of the fund's taxable income, whether or not they receive cash distributions.
• Items of income, gain, loss and deduction with respect to shares could be reallocated if the Internal Revenue Service does not accept the assumptions or conventions used by the fund in allocating such items.
• There is no deduction for qualified publicly traded partnership income.
• An insolvency resulting from another series of the trust or the trust itself may have a material adverse effect on the fund.
• Disruptions in the ability to create and redeem creation units may adversely affect investors.
• The shares could decrease in value if unanticipated operational or trading problems arise.
• Historical performance of the fund and the index is not indicative of future performance.
• Fees and expenses may deplete the fund's assets if the fund's investment performance is not favorable.
• There may be circumstances that could prevent the fund from being operated in a manner consistent with its investment objective.
• Redemption orders for creation units may be subject to postponement, suspension or rejection under certain circumstances.
• Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940.
• Shareholders do not have the rights enjoyed by investors in certain other vehicles.
• Various actual and potential conflicts of interest may be detrimental to shareholders.
• There is a lack of independent advisers representing investors.
• The possibility of termination of the fund may adversely affect your portfolio.
• Competing claims over ownership of intellectual property rights related to the fund could adversely affect the fund and an investment in the shares.
• The value of the shares will be adversely affected if the fund is required to indemnify the trustee or the managing owner.
• Although the shares are limited liability investments, certain circumstances such as bankruptcy of the fund or indemnification of the fund by the shareholders will increase a shareholder's liability.
• The fund may lose money on its holdings of money market mutual funds.
• Due to the increased use of technologies, intentional and unintentional cyber attacks pose operational and information security risks.

Future Outlook

The report includes forward-looking statements regarding the fund's future performance, which are subject to risks and uncertainties. The fund and managing owner undertake no obligation to update these statements.

Management Comments

• Management of Invesco Capital Management LLC, as managing owner of Invesco DB Agriculture Fund, is responsible for establishing and maintaining adequate internal control over financial reporting.
• Based on our assessment and those criteria, we have concluded that the Fund maintained effective internal control over financial reporting as of December 31, 2023.

Industry Context

The fund operates within the commodity futures market, which is subject to various factors including global supply and demand, weather conditions, and geopolitical events. The fund's performance is influenced by the agricultural sector and its ability to track the DBIQ Diversified Agriculture Index.

Comparison to Industry Standards

• The fund's performance is compared to the DBIQ Diversified Agriculture Index Excess Return, which it seeks to track.
• The fund's total return of 7.58% on a market value basis for 2023 is a key metric for comparison with other commodity-focused investment vehicles.
• The fund's expense ratio of 0.93% per annum is a relevant benchmark for comparison with similar ETFs and commodity pools.
• The fund's use of the Optimum Yield rolling methodology for certain contracts is a common strategy in commodity futures trading, aimed at mitigating contango and maximizing backwardation benefits.
• The fund's holdings of U.S. Treasury obligations, money market mutual funds, and T-Bill ETFs as collateral is a standard practice for commodity pools and ETFs.

Related Party Transactions

• The fund invests in affiliated money market mutual funds and T-Bill ETFs managed by affiliates of the Managing Owner.
• The Managing Owner has contractually agreed to waive indefinitely the fees that it receives in an amount equal to the indirect management fees that the Fund incurs through its investments in affiliated money market mutual funds and/or affiliated T-Bill ETFs.

Stakeholder Impact

• Shareholders will be subject to U.S. federal income taxation on their allocable share of the fund's taxable income.
• Authorized Participants may be affected by disruptions in the ability to create or redeem Creation Units.
• The fund's performance will impact the value of shareholders' investments.
• The fund's operations are dependent on the services provided by the Managing Owner, Commodity Broker, Administrator, Custodian, Transfer Agent, Distributor and Index Sponsor.

Next Steps

• The fund will continue to track the DBIQ Diversified Agriculture Index Excess Return.
• The fund will continue to invest in futures contracts on agricultural commodities.
• The fund will continue to hold U.S. Treasury obligations, money market mutual funds, and T-Bill ETFs as collateral.
• The fund will continue to monitor and manage risks associated with commodity trading.

Key Dates

Keywords

Agriculture, Commodities, Futures Contracts, DBIQ Diversified Agriculture Index, Exchange Traded Fund, Treasury Obligations, Commodity Pool, Invesco, Investment, Trading