A Commodities Downturn Could Be a Positive for 'DBC'

Falling lumber prices could foreshadow a larger dip in commodities, which should open up value opportunities with the Invesco DB Commodity Index Tracking Fund (DBC).

Per a CNBC report, lumber “has seen one of the most jaw-dropping moves in the space. At its peak in May, it was up more than 90% for the year. It has since reversed and is now down nearly 30% for 2021.”

“This is just the beginning of a broader downturn for commodities, according to Lakshman Achuthan, co-founder of the Economic Cycle Research Institute,” the report added, noting that the latest move is related to cycles.

“Cycles in global industrial growth are closely linked to cycles in industrial commodity prices, including lumber,” Achuthan told CNBC. “While I know — lumber notwithstanding — people are still pretty bullish on commodities, with a cyclical downturn in global industrial growth getting underway things are going to shift the other way.”

Aside from being an inflation hedge, commodities can give investors access to assets that are uncorrelated to the broad equities market.

Commodities typically march to the beat of their own drum, giving a portfolio much-needed diversification. When interest rates do eventually rise, commodity prices will move higher as well.

Per the fund’s description, DBC seeks to track changes, whether positive or negative, in the level of the DBIQ Diversified Agriculture Index Excess Return™ (DBIQ Diversified Agriculture Index ER or Index), plus the interest income from the fund’s holdings of primarily US Treasury securities and money market income less the fund’s expenses.

Buying the Dip

Even if commodity prices were to fall, now could be an opportune time for investors to snag commodities exposure.

“You’ve seen about a 150 percentage point increase in commodity price inflation through about earlier this year, a couple of months ago,” Achuthan said, “and then now in March, our research has showed a pivot point the other way on global industrial growth to the downside.”

DBC 1 Year Performance

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