Active Management Can Help Mitigate Volatility in Ag Commodities

Agricultural commodities could continue giving investors a roller coaster ride as the second quarter of 2023 is already underway. As such, getting active management could help mute some of that forthcoming volatility.

Adding to the predictability of the ag commodities market is always-changing weather patterns. According to market experts, this time of year could be a guessing game heading into the summer months.

“I think right now the market has digested that the stocks and acreage report, they’re looking ahead to the weather,” said Chip Nellinger of Blue Reef Agri-Marketing. “And this is typically a time of year where it’s a little bit cloudy and murky as far as what the outlook is. So, you can see some sloppy choppy trading here as the market tries to adjust as forecast ahead of us.”

“Any kind of weather problems is going to have a very strong reaction to the upside,” Nellinger added. “So, this is the year you reward rallies but you’re patient not doing much until we get to the determination of yield and crop size later in the summer.”

Combat Volatility With Active Management

Adding a touch of dynamism can help with muting volatility. This is available with active management, which can allow for changes in exposure to a certain commodity by adding more exposure when it skews to the upside and vice versa for the downside.

This is available in exchange traded funds (ETFs) such as the Neuberger Berman Commodity Strategy ETF (NBCM). The fund uses active management, which, as mentioned, allows for fluidity when adding commodities exposure.

With its active management style, NBCM puts the portfolio holdings in the hands of seasoned portfolio managers, which will allow for changes to holdings when market conditions warrant necessary adjustments. This adds a layer of flexibility to an investor’s portfolio, especially with the capital markets responding to the U.S. Federal Reserve and interest rate policy.

The fund invests in commodity-linked derivatives with an active risk-balanced, diversified approach that seeks to minimize the effects of market volatility — which is privy to the commodities market. Tactical exposure adjustments expand potential alpha sources by considering top-down macro variables among commodity sectors and individual commodity outlooks to take advantage of short- and long-term opportunities.

For more news, information, and analysis, visit the Commodities Channel.