As the global economy improves and the reflation kicks in, investors should consider commodity exchange traded funds.
On the recent webcast, As Fed Reassesses Interest Rates, Is Your Portfolio Prepared?, James Butterfill, Head of Research and Investment Strategy of ETF Securities, argued that the speculative unwind is in progress as the reflation trade takes hold and reverses the previous bearish sentiment. Consequently, investors may begin to look at commodities for a more long-term potential.
“I would argue the bottom in commodities was January 15 to February 15, 2016 but that investors need to look at commodity cycles over five to 10 year periods,” Timothy Seymour, a contributor at CNBC, said.
Recently, the Organization of Petroleum Exporting Countries’ deal to cut product was met with skepticism given its poor history of adhering to quotas, along with concerns of increased production from non-OPEC members that would offset any cuts.
“To maintain the deep cuts to production, Saudi Arabia will have to defy the seasonal trend of increasing production from March to July,” Butterfill said.
Historically, production is at their highest during the June and July months before falling off starting in August.
In anticipation of the ongoing global growth story and return to reflationary trends, Matt Collins, Director and Head U.S. Product Operations of Capital Markets at ETF Securities, pointed to a number of ways for investors to diversify their portfolios by hedging risks or capitalizing on improving commodity prices.
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For instance, investors who want to use precious metals as a short-term hedge and even a long-term play on improving fundamentals may consider a number of physically backed metals-related ETFs as a way to diversify a traditional stock and portfolio, including ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), ETFS Physical Silver Shares (NYSEArca: SIVR), ETFS Physical Platinum Shares (NYSEArca: PPLT) and ETFS Physical Palladium Shares (NYSEArca: PALL). ETF investors can also use the ETFS Physical Precious Metals Basket Shares (NYSEArca: GLTR) as a catch-all of all four precious metals.
Furthermore, investors interested in diversifying their portfolios with commodities exposure have a number of ETF options available to them. ETF Securities came out with a line of ETFs to outperform the widely observed Bloomberg Commodity Indices without the need to worry about troublesome K-1 forms come tax season, including the actively managed ETFS Bloomberg All Commodity Strategy K-1 Free ETF (NYSEArca: BCI), ETFS Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BCD) and ETFS Bloomberg Energy Commodity Longer Dated Strategy K-1 Free ETF (NYSEArca: BEF).
The broad commodity ETFs reflect ETF Securities’ outlook on the commodities market, notably their bullish views on agricultural and energy plays. BCI includes a hefty 29.6% tilt toward agricultural commodities and 29.2% to energy while BCD includes 25.1% agriculture and 22.6% energy. Alternatively, investors can just focus on an improving energy market through the targeted BEF.
Financial advisors who want to learn more about the commodities market can watch the webcast here on demand.