The commodity market and related exchange traded funds are finally having their moment in the sun, rallying back into a bull market and outperforming traditional equities and fixed-income assets.
Since their January lows, the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) is up 29.7%, iPath Bloomberg Commodity Index Total Return ETN (NYSEArca: DJP) is up 25.3% and iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG) is up 31.5%.
Related: Commodity ETFs Are Outperforming Stocks, Bonds
The Bloomberg Commodity Index, which tracks 22 raw materials, is about to close more than 20% above its January 20 low, meeting the common definition of a bull market, Bloomberg reports. The break into bull territory will end its drawn out bear market that began at the end of 2011.
Commodities have outperformed bonds, currencies and equities this year on speculation over supply disruptions and production cuts that slowly diminished multi-year surpluses, which contributed to the largest price collapse in a generation. Meanwhile, we are also seeing demand improving.
“The broad-based recovery in commodity markets this year has tipped several markets into bull market territory,” Mark Keenan, head of commodities research for Asia at Societe Generale SA, told Bloomberg. “Overall, sentiment is good but remains cautious, the market is evolving significantly, specifically across the oil markets.”
For example, Brent crude oil has recovered to $50 a barrel from a 12-year low in January due to production disruptions from Nigeria to Venezuela, and as U.S. shale output dipped after OPEC’s policy of elevated production. Goldman Sachs Group has stated that the global oil market has flipped to a deficit sooner than expected.
Related: Oil ETFs Bounce After Goldman Points to Supply Deficit
The broad commodity ETFs include heavy energy tilts. For example, DBC includes about 50% and DJP has 30%.
Meanwhile, gold and silver are among the best performers this year over global economic concerns and a pullback in the U.S. dollar that supported demand for precious metals as a better store of value.
Nevertheless, observers remain skeptical of the turn in the commodities market.
“Commodities have outperformed, that’s the reality,” Dominic Schnider, head of commodities and Asia-Pacific foreign exchange of the wealth-management unit at UBS Group AG, told Bloomberg. “I still think prices can fall in the short run, they should find a bottom during summer. I think prices of commodities in general, not so much base metals but predominantly energy, will come off again.”
For more information on the commodities market, visit our commodity ETFs category.
PowerShares DB Commodity Index Tracking Fund