Equities have been singing a soft, sweet melody of late thanks to the vaccine rally, but investors shouldn’t forget to add some heavy metal exposure. That’s industrial metals in particular, with ETFs like the Invesco DB Base Metals Fund (DBB).
Amid the pandemic, industrial metals have been on the rise like aluminum and copper. They’re not circulated in the financial media as much as their precious metal counterparts like gold or silver, but closer examination is more than worthwhile.
DBB seeks to track changes, whether positive or negative, in the level of the DBIQ Optimum Yield Industrial Metals Index Excess Return™ (DBIQ Opt Yield Industrial Metals 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. The fund is designed for investors who want a cost-effective and convenient way to invest in commodity futures.
The index is a rules-based index composed of futures contracts on some of the most liquid and widely used base metals — aluminum, zinc and copper (grade A). Unlike gold or silver, these metals don’t serve as a store of value, but play a vital role in the economy with their wide use in manufactured products.
Like the rest of the capital markets, the fund took a dip during the pandemic sell-offs, but since then, DBB has been gaining. It’s now up 19% year-to-date.
Industrial Metals Have Performed Better than Gold This Year
Gold has certainly been in the news this year given its safe haven status during the pandemic sell-offs. However, industrial metals have taken home the best-performing title, according to a Reuters article.
“Industrial metals, the best-performing commodities sector over the past six months, look set to extend their surge into 2021 as a China-led global economic recovery, a weak U.S. dollar and potential supply disruptions continue to lend support,” the article said. “The S&P Goldman Sachs industrial metals index – a subset of the widely-tracked S&P Goldman Sachs Commodities Index (S&P GSCI) – has climbed over 38% since June 1. And copper, aluminium, nickel and zinc have all eclipsed price gains made by gold, which scaled all-time highs in August.”
“The V-shape recovery in China, supported by the country’s strict and immediate lockdown implementation, government-led stimulus and supportive actions from the People’s Bank of China, continues to outperform market expectations,” said analyst Natalie Scott-Gray of broker StoneX.
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