Investors have turned to commodity exchange traded funds to enhance and diversify their investment portfolios against high inflationary pressures.
Year-to-date, the Invesco DB Optimum Yield Diversified Commodity Strategy Portfolio (NasdaqGM: PDBC) increased 36.4% and iShares S&P GSCI Commodity-Indexed Trust (NYSEARCA: GSG) advanced 44.0%.
According to Citi data, investment vehicles linked to raw materials like oil and wheat have attracted net inflows of $38.7 billion year-to-date ended May 10, building on weekly inflow highs through March, the Financial Times reports.
Meanwhile, the rising commodity prices have helped push the benchmark S&P GSCI Index to its highest level since 2008.
Prices on a number of commodities like energy, grains, and fertilizer have surged following the Russia-Ukraine war, which further exacerbated supply chain concerns in a post COVID-19 environment and pushed inflation even higher.
While the S&P GSCI raw materials index has pulled back from its March peak, the benchmark remains 37% higher for the year, compared to 16% decline for the broad MSCI World index, and a drop of 8% for an Ice Data Services barometer tracking global high-grade bonds.
Agricultural commodity-related funds have attracted the most inflows for 2022, according to portfolio managers at DWS. Morningstar data has shown both broad-based and sector-specific commodity strategies bringing in $24.5 billion in net inflows this year, with over 95% heading toward index funds tracking this market segment.
“We have a pretty diversified portfolio at all times, but we’re definitely leaning a bit more into natural resources and commodities, which is a counter to historically what we have done if we see this kind of global growth slowdown,” Evan Rudy, liquid real assets fund manager at DWS, told the Financial Times.
The spike in inflation could outline a new commodities market boom. The commodities market spent the first 10 years of the 2000s enjoying a high on China’s surge in demand for raw materials to fuel its economic growth, but the commodities market languished for several years after as many worried about the volatile prices and sustainability concerns.
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