Commodities and related exchange traded funds are on pace for a negative decline this year, reflecting investors’ concerns over global growth, heightened trade tensions and a strong U.S. dollar.
Year-to-date, the Invesco DB Commodity Index Tracking Fund (NYSEArca: DBC), the largest broad commodity-related ETF, fell 6.7%, the iShares S&P GSCI Commodity-Indexed Trust (NYSEARCA: GSG) dropped 7.0% and United States Commodity Index Fund (NYSEArca: USCI) decreased 9.1%.
The benchmark Bloomberg Commodity Index retreated almost 7% this year, led by a more than 15% decline in oil prices – oil-related commodities make up the lion’s share of major commodity benchmarks. Meanwhile, copper plummeted declined 16%, coffee plummeted 23% and lumber plunged 28% so far this year, reports Ira Iosebashvili for the Wall Street Journal.
Investors are also fed up with the asset class. According to EPFR Global data, investors have yanked over $11 billion from commodity-related funds in the past six months. For example, since mid-June, DBC saw $862 million in net outflows. Meanwhile, net bullish plays among hedge funds and other speculative investors on oil now stand at their lowest level since August 2016.
Dragging on the commodities segment, concerns over the escalating trade war between the U.S. and China have pressured global growth. Many are already fear that the slowing growth would diminish demand for raw materials.
“The strength that we saw in the last two years is not there anymore,” Michael Widmer, a commodities strategist at Bank of America Merrill Lynch, told the WSJ. “Large parts of the global economy are now in a challenging environment.”
Widmer projects commodity prices will continue to weaken in the first half of 2019 before regaining a foothold in the second half of the year when he projects China to enact a limited stimulus package.
Furthermore, a strengthening U.S. dollar has pressured prices on USD-denominated commodities, which have grown more expensive to foreign buyers and investors. The U.S. dollar has been appreciating on the outlook for higher U.S. interest rates and the staying power of the U.S. economy among its international peers.
For more information on the commodities market, visit our commodity ETFs category.