Everyone is focusing on equities as the stock market rally pushes into 2018. However, investors shouldn’t ignore other asset classes as it may be time for commodity ETF to shine.
“The economic conditions are ripe for a broad commodities rally in 2018. They may be among the best performing asset classes by year end, perhaps even beating domestic equities as quantitative tightening threatens to put a damper on the 9-year bull run,” Maxwell Gold, director of investment strategy at ETF Securities, said in a note.
Specifically, Gold points to three contributing factors to support commodities ahead: Global manufacturing may push commodity demand higher. Investors have yet to regain their previous positions in commodity funds. Commodities tend outperform in high growth and inflationary periods.
Global gross domestic product is expected to increase to 3.9% this year, according to the International Monetary Fund, with reflationary signals coming out of global manufacturing and industrial activity. The recent global manufacturing Purchasing Managers’ Index levels were at a four year high while US manufacturing PMI ended 2017 at 59.7 after touching a 13 year high in September 2017. This greater manufacturing activity could translate to increased commodities demand, especially for the raw materials needed to fuel the rising economic activity.
Meanwhile, as commodity fundamentals improve, more investors may take notice. Investor flows reveal that many have only recouped half of their previous holdings with net inflows of $14 billion since January 2016. As the commodity outlook strengthens, investor interest may further support pricing ahead.