“Investors still want long commodity exposure but, despite the return of diversification benefits from commodities, are viewing this asset class increasingly with an absolute return bias,” Kamal Naqvi of Credit Suisse said in the article. “I think we could or should see much more concentrated exposure to individual commodities, recognising that this is much more a ‘stock pickers’ environment.”
For instance, coffee and cocoa have been among the best performing commodities this year. The iPath Dow Jones-UBS Coffee Total Return Sub-Index ETN (NYSEArca: JO) has jumped 95.2% year-to-date on drought concerns in Brazil, the world’s largest supplier of coffee beans. Additionally, the iPath DJ-UBS Cocoa TR Sub-Index ETN (NYSEArca: NIB) has increased 12.8% year-to-date on rising emerging market demand and supply concerns out of the Ivory Coast.
“In this type of environment, active management – being long/short and relative value – is the only way,” Aakash Doshi, analyst at Citi, said in the article. “We are not in a commodities super cycle any more.”
ETF traders can also hedge further weakness in the commodities space with inverse exchange traded products. For example, the PowerShares DB Commodity Short ETN (NYSEArca: DDP) has increased 75.5% year-to-date.
For more information on the commodities market, visit our commodity ETFs category.
Full disclosure: Tom Lydon’s clients own shares of GLD.