Investors seeking to diversify their portfolio often turn to commodities for the low correlations to both stocks and bonds. One fund, the actively managed Neuberger Berman Commodity Strategy ETF (NBCM), offers enhanced diversification opportunities as it invests across commodity types and sectors on a global scale.
NBCM is actively managed and seeks total returns by investing in a diverse portfolio of commodities. It uses a risk-weighted approach to try and reduce the impacts of market volatility. The strategy also focuses on commodity scarcity and works to hedge for the potential of backwardation and demand.
“The failure of a commodity is directly related to its scarcity, not to its production,” explained Hakan Kaya, PhD, senior portfolio manager of NBCM, in a video. “Our approach considers current and future scarcity at a reasonable risk.”
Active management keeps the strategy dynamic, with the managers able to express and alter their tactical views and allocations as the market and macro environment change. The managers use quantitative models alongside fundamental analysis and seek long- and short-term opportunities within commodities. The fund invests in both short and long positions within commodities as well as fixed income securities.
“We construct portfolios based on four pillars,” Kaya noted. “First, we build a strategic, risk-budgeted portfolio to balance scarcity opportunities with commodity risks.”
Next, the portfolio managers utilize a tactical overlay to capture short-term dynamics within individual commodities. They then actively select futures contracts to target roll yield optimization. Finally, the managers work to boost yields on the cash collateral held by the fund.
NBCM Offers Diversified Exposure Within Commodities
NBCM invests across six different sectors and 28 commodities that include gold and other metals, oil, agricultural products, and natural gas. The top commodities in the fund currently consist of gold at 18.76% weight, brent crude at 7.68%, and copper at 6.86% as of Oct. 3. The fund is up 8.34% YTD on a total returns basis as of Oct. 3, according to Y-Charts data.
Images source: Neuberger Berman
The fund’s fixed income securities are largely comprised of investment-grade bonds. These help preserve capital, increase liquidity, and provide collateral. The managers also work to maintain a short duration position for the overall bond portfolio.
NBCM invests in domestic and international securities while using its wholly owned Cayman Islands subsidiary. This eliminates the need for a K-1 come tax season, potentially simplifying the tax reporting process for investors. The fund carries an expense ratio of 0.66%.
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