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Outperforming asset classes: Exploring commodity ETFs
Not all asset classes are the same. While some asset classes have been hit hard over the past year, others have performed relatively well. Are commodities worth exploring in this current market environment?
It’s no secret that 2022 has not been kind to investors. Year-to-date, the S&P 500 is down 23% while the tech-heavy Nasdaq Composite index is down 31%. The Fed’s decision to aggressively pursue rate hikes will make servicing debt more expensive for people and businesses. While these rate hikes have scared investors and risk the possibility of a recession, it is important to remember that the bigger picture is to slow down inflation – which remains at decades-high levels. After all, inflation is what erodes the purchasing power of consumers and their savings.
While the market is down, not all is doom and gloom, though. There are some asset classes that have a low correlation to stocks and bonds and, commodities are one of them. Before we explore different commodity ETFs, investors should be aware of different investment strategies and potential tax implications that come with having exposure to the commodities sector.
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When will inflation go down?
As the timeless aphorism goes, “this too shall pass,” and while it does seem inflation is here to stay, we will get through this period sooner or later. By some estimates, inflation could subside by as early as the middle of next year. The World Bank also corroborates this point of view -- Ayhan Kose, who serves as the Acting Vice President for Equitable Growth, Finance, and Institutions recently stated: “Recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation.”
With all that being said, let’s dive in and explore a few different commodity ETFs that have so far outperformed the market year-to-date.
COMB - GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF
GraniteShare’s COMB gives investors exposure to a broad range of commodities, including gold, natural gas, crude oil, soybeans, copper, corn, silver and aluminum. Its biggest sector is energy at 37%, followed by grains at 21%. These are important to note as energy and grains have been adversely affected by geopolitical events and supply and demand shock, which could bode well for investors in the near future. In addition, this fund has one of the lowest management fees for a commodity ETF at 0.25% while also giving investors the benefit of not having to fill out the K-1 tax form. As previously stated, commodities have a low correlation to traditional asset classes, and this is exemplified by COMB as it has returned an impressive +12.58% year-to-date so far.
COM – Direxion Auspice Broad Commodity Strategy ETF
Direxion’s COM ETF is unique in that it aims to take advantage of rising commodity prices while mitigating volatility and risk by converting their positions to cash when the inverse happens (downturn in prices). The management team asserts this will extenuate the cyclical nature of commodities. Through this fund, investors will have exposure to 12 different commodities in agriculture, energy and metals while paying 0.72% in Gross Expense Ratio. With more than $302M in Assets Under Management and a +7.85% return year-to-date, this fund could potentially outperform if we head into a recession and demand for commodities continue to outstrip supply.
Please note this article is for information purposes only and does not constitute investment advice.
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