As the economy continues to heal, the risk of rising inflation remains. Commodities exposure and ETFs like the iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT) can help.
COMT, which is up 18% on the year, seeks to track the investment results of the S&P GSCI Dynamic Roll (USD) Total Return Index composed of a broad range of commodity exposures with enhanced roll selection, on a total return basis. The index measures the performance of futures contracts.
In seeking to achieve its investment objective, the fund may invest in a combination of exchange-traded commodity futures contracts, exchange-traded options on commodity-related futures contracts, and exchange-cleared commodity related swaps, thereby obtaining exposure to the commodities markets.
COMT investors get:
- Access to commodities across the energy, metals, agriculture, and livestock sectors through a rules-based futures strategy designed to minimize costs associated with futures investing.
- Simplified tax filings, as the fund does not require K-1 tax reporting
- Use to diversify a portfolio and potentially protect against inflation
“At the center of this supposed disorder are products that offer a haven of sorts—a hedge against inflation,” an Investopedia article explained. “Because commodities prices typically rise when inflation is accelerating, they offer protection from the effects of inflation. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do.”
Is the Commodities Super-Cycle Underway?
Another catalyst for rising commodities prices is the sector’s super-cycles, which are long time periods when commodities trend higher than their long-term price trends, according to Institutional Investor. Analysts are already seeing signs of a super-cycle with a weaker dollar, fiscal stimulus, and infrastructure spending.
“While most investors have their eyes on the Nasdaq or Bitcoin, it is interesting to note that the best performing asset class since the beginning of the year (excluding cryptocurrencies) is commodities,” an Entrepreneur article noted. “The price of Brent crude oil is back above $60 a barrel, copper is at an 8-year high, and palladium is back to where it was 6 years ago.”
“After being shunned in asset allocations for more than a decade, the idea of a return to grace for commodities is starting to gain momentum among strategists,” the article added further. “Indeed, JP Morgan has just published research according to which commodities have started a new ‘super-cycle.'”
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