ETF Trends CEO Tom Lydon joined Fox Business and Maria Bartiromo to discuss commodities and products beyond the underwhelming state of gold.
While the Fed has been signaling it is not concerned about inflation, this is an area that is of great concern for advisors and investors.
In terms of inflation protection, commodities represent a significant portion of the CPI’s volatility, resulting in a positive and often outsized response to inflation. When dealing with diversification, low correlation to equity and fixed income can lead to enhanced risk-adjusted returns.
Regarding alpha generation, commodity markets offer unique active trading opportunities for capable investment managers. Plus, with the Biden green initiative, there could be commodity demand shock due to post-COVID “build back better” infrastructure spending in both developed and emerging markets.
There are a couple of ETFs to consider in this space, including the Invesco DB Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC). With that in mind, gold has been the worst-performing commodity in the last year. Plus, there have been negative redemptions in the SPDR Gold Shares ETF (GLD), the largest gold ETF in existence.
Lydon adds: “However, gold tends to be a second-half player. When you look at other periods of inflation, it tends to be the case where gold kicks in during the second half of the year.”
Coming off of thirty years of declining interest rates, higher bond prices are likelier down the road.
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