Data suggests that, broadly speaking, commodities are undervalued compared to more traditional assets, such as stocks and bonds. The PowerShares DB Optimum Yield Diversified Commodity Strategy Portfolio (NasdaqGM: PDBC) offers investors broad-based exposure to multiple commodities.
The current environment, characterized by economic growth and heightened inflation expectations, provides an ideal backdrop for investors to consider the benefits of real assets.
However, reluctance exists due to the ambiguity of the real assets label and also, concerns related to market cyclicality and volatility. Investors are also often limited by existing strategies in the marketplace that focus on a specialized area within real assets and lack flexibility to adapt to changing market conditions.
PDBC “seeks to provide long-term capital appreciation using an investment strategy designed to exceed the performance of DBIQ Optimum Yield Diversified Commodity Index Excess Return, an index composed of futures contracts on 14 heavily traded commodities across the energy, precious metals, industrial metals and agriculture sectors,” according to Invesco.
Commodities Undervalued Relative to Equities
Commodities have been trailing equities by a wide margin over the past year.
“The S&P 500 index is sporting double digit percentage gains so far this year. Meanwhile, the S&P GSCI All Commodities index is down 14% over the past year,” reports Frik Els for Mining.com.
Citing data from Incrementum’s 13th annual In Gold We Trust report, the article notes commodities are significantly undervalued relative to equities.
Real assets can potentially help investors combat rising inflation, enhance portfolio diversification, and participate in global growth.
PDBC is among the commodities exchange traded products that can deliver for investors if markets readjust toward the idea that the U.S. dollar is due for a near-term pullback and that global economic growth will support increased commodities demand.
Still, it could take an epic rally by commodities for the group to get close to being fairly valued against stocks.
“Plotting the S&P GSCI and the S&P 500 all the way back to 1970 shows the indices long-term upward trend line and the current disconnect between commodities and equities,” according to Mining.com. “To return to this trend line – which happens on average every 6 to 8 years – the S&P would have to fall by 44% and the GSCI to rise by 112%.”
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