Market participants lavish attention upon themes such as artificial intelligence (AI) and renewable energy. So, it’s arguably not surprising that some “old school” commodities, excluding gold and oil, aren’t points of emphasis for some investors.
They may want to alter their perspectives. Despite the glitz and glamour associated with growth and technology stocks, the materials sector is performing well this year. For example, the S&P Select Sector Materials Index is higher by more than 8% year-to-date. The ALPS CoreCommodity Natural Resources ETF (CCNR) has been even more impressive, returning almost 20% since the start of the year.
CCNR turned a year old last month. It proves there’s potential value in the union of active management and materials investing. Advisors and investors appear to agree, as highlighted by CCNR’s more than $339 million in assets under management.
CCNR’s Secret Sauce
Active management is availing itself as beneficial to CCNR investors and flexibility is one reason why. The ETF isn’t dedicated to the materials sector. Though it allocates more than 40% of its roster to that sector, it “dabbles” in other sectors. That includes a combined 46.71% allocation to energy and consumer staples stocks.
Another benefit featured with CCNR is that just 34.64% of its holdings are U.S.-based companies. That means the fund offers investors an avenue for participation in upside of ex-U.S. markets. Perhaps a superior one to basic global ETFs, which often devote more than 60% of their portfolios to domestic equities.
Focusing on the commodities side of the CCNR equation, tailwinds abound. Those include soaring gold and silver prices and talk that depressed prices on agriculture commodities imply there’s value in that space. Plus, global macroeconomic issues are shining a light on the advantages of holding commodities or natural resources in broad-based portfolios.
“Growing concerns around US fiscal sustainability, softening labour market data, and the threat of tariff-driven supply disruptions are reinforcing the case for hard assets,” noted Ole Hansen of Saxo. “These conditions also strengthen the possibility of a more dovish shift from the Federal Reserve, potentially opening the door to rate cuts sooner and deeper than previously expected. In this environment, gold pushing toward the USD 4,000 mark over the next 12 months is no longer out of the questions.”
CCNR could also gain momentum into year-end if the Federal Reserve cuts interest rates. That would likely further depress the dollar, boosting the allure of dollar-denominated commodities along the way.
Economic “weakness may drive down the dollar further while triggering a fresh round of US rate cuts, thereby supporting demand for hard assets through a reduction in the cost of holding a non-coupon or dividend-paying asset,” added Hansen.
For more news, information, and analysis, visit the ETF Building Blocks Content Hub.
