The Invesco DB Commodity Index Tracking Fund (DBC) returned a jaw-dropping 41.4% in 2021, and while asking for a sequel to that performance might be asking a lot, the diversified commodities exchange traded fund could still generate plenty of upside in 2022.
Even with a blistering performance in 2021, commodities are attractively valued relative to other assets, including bonds and equities, says Jeff Currie of Goldman Sachs. The economist sees unique opportunity with commodities in 2022. That could be to the liking of DBC investors.
The $2.84 billion ETF follows the DBIQ Optimum Yield Diversified Commodity Index and typically holds futures contracts of 14 heavily traded commodities. That diversified line-up could be advantageous to investors this year.
“The best place to be right now, particularly given the Fed pivot, are commodities,” said Currie in a recent interview with Bloomberg. “We think you’re going to see another year of out-performance of commodities and real assets more broadly.”
Among specific commodities, Currie is bullish on oil. Goldman Sachs is forecasting Brent crude, the global benchmark, rising to $85 in the current quarter, but if Iran doesn’t soon boost output, $95 per barrel at some point this year isn’t out of the realm of possibility. Add to that, Goldman believes that $100 a barrel could be in the offing next year.
“This market has the potential to get very tight going over the course of next 3-6 months,” adds Currie.
Brent crude is currently DBC’s third-largest allocation at a weight of 12.26% followed by West Texas Intermediate futures at 11.7%.
Adding to the case for DBC is the fact that the high prices of commodities today aren’t compelling producers to up output. With energy commodities and miners emphasizing financial prudence and better balance sheets, supplies could remain tight, potentially providing a catalyst for DBC upside this year.
“Healthy commodity prices are not triggering a supply response that would put a lid on performance from here; while $80 oil and $4 copper would generally incentivize a wave of production, corporations are hesitant to make capital outlays in the face of COVID variants and a teetering Chinese housing market,” according to Seeking Alpha.
The wild card for DBC this year could be gold. The ETF delivered the aforementioned stellar 2021 showing with no assistance from the yellow metal, but commodities experts believe that with inflation still running high, it’s unlikely that gold slumps again this year. Gold futures account for almost 8% of the DBC portfolio.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.