VettaFi’s vice chairman Tom Lydon discussed the abrdn Bloomberg Industrial Metals Strategy K-1 Free ETF (BCIM) on this week’s “ETF of the Week” podcast with Chuck Jaffe of “Money Life.”
At a time when commodities are booming, and inflation continues to remain high, BCIM offers an alternative take on metals investing. Lydon explained that instead of investing in precious metals, the fund focuses on the raw earth metals that are the underpinnings of the global economy.
“It’s the metals of the earth that keep the world going, areas like aluminum, copper, nickel, zinc,” Lydon said. “We need these metals to make our daily operations come together.”
The fund is a collaboration between abrdn and Bloomberg and offers exposure to these core metals via futures contracts. Metals have experienced a growing interest in the last two years, and with the popularity of commodity funds in an inflationary environment, BCIM offers a different opportunity within the commodities sector for investors.
It’s a potential play for advisors and investors looking to diversify away from stocks and bonds and into commodities by picking up exposure to industrial metals.
“We have seen a lot of money go into commodity-related ETFs, but it’s still just a drop in the bucket, and a lot of people on Wall Street who are following inflation and the commodities space are saying a 5% allocation to a portfolio is not going to get you what you’re looking for,” Lydon said.
Bigger Allocations for Better Return Potential
The advisor community collectively has been allocating larger portions of their portfolio to these alternative types of investments, Lydon explained, as much as 20% to sufficiently capture performance and reflect it within the portfolio.
Trend following has become an increasingly popular strategy where a fund or security is purchased when it is above a certain moving average, generally 200 days, and sold when it falls below that moving average. BCIM is a fund that is a good candidate for trend following as it is currently above its 200-day moving average, though it is just a year old.
“If we do see a pullback in inflation, if we do see costs start to settle, it will go below its average, and you can sell it but in the meantime, what you do is you ensure that if inflation is with us for a while that part of your portfolio will work in your favor,” Lydon explained.
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