The move away from fossil fuels, investors’ focus on climate change, and the war in Ukraine are causing supply scarcity for oil and natural gas, metals, grains, and other commodities. This, in turn, is leading to more investors turning to commodity ETFs in large numbers to diversify their portfolios.
While the S&P 500 fell 12.9% through the end of April, the S&P Global GSCI — a benchmark of 24 commodities in agriculture, energy, and metals — had a total return of 39.9%. This rally in commodities is a continuation of last year, when the GSCI surged 40.4%.
“Historically, commodities offer the best protection against rising inflation compared to equities and other asset classes,” Jim Wiederhold, associate director of commodities and real assets at S&P Dow Jones Indices, told the Wall Street Journal. “And they tend to rise during times of geopolitical risk. We see this happening in real time as the Ukraine-Russia War rages on.”
Currently, there are 122 commodity ETFs in the market, up from 112 last year.
Jason Bloom, head of fixed income and alternative ETF strategy for Invesco, told the Journal that we’re seeing “the early innings of the next commodity supercycle due to supply and demand imbalances.”
“The phenomenon should persist at least through year-end, so the outlook for commodity investments is strong,” added Aniket Ullal, vice president and head of ETF data and analytics at CFRA. “Even if the conflict in Ukraine ends, there are so many implications that need to be resolved that will keep commodity prices elevated.”
For investors looking to diversify their portfolios amidst volatile markets, abrdn offers a suite of commodity ETFs, including the abrdn Physical Gold Shares ETF (SGOL), the abrdn Physical Silver Shares ETF (SIVR), the abrdn Physical Platinum Shares ETF (NYSEArca: PPLT), the abrdn Physical Palladium Shares ETF (NYSEArca: PALL), and the abrdn Physical Precious Metals Basket Shares (NYSEArca: GLTR).
It should be noted, however, that while serving as a good diversifier, commodities are more volatile than stocks. Macroeconomic factors such as supply chain disruptions, economic slowdown, or a recession could significantly — and abruptly — impact prices.
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