Both of These Commodity ETFs Are Up 25% Amid Rising Inflation

According to a Financial Times article, investors are tilting further away from the transitory inflation narrative. With the way commodity prices are rising, it’s certainly giving them even more reason to do so.

“Our inflation expectations are going up and growth expectations are going down,” said Elaine Stokes, a portfolio manager at Loomis Sayles.

As the U.S. Federal Reserve looks at a rising consumer price index (CPI), it may have to tighten its interest rate policy more aggressively.

“For the duration of this year we are going to be looking at very, very high inflation in the US at every upcoming Fed meeting,” said David Mericle, an economist at Goldman Sachs. “I just don’t see them going through a meeting with inflation so far above their target and not delivering a rate hike.”

One way to hedge inflation is via commodities exposure, such as oil, agricultural produce, precious metals, or raw metals. They give investors alternative assets that are relatively uncorrelated to broad stock market indexes.

2 Funds to Consider

A pair of Invesco exchange traded funds (ETFs) can help investors ward off the effects of inflation. First off, there’s the Invesco DB Commodity Index Tracking Fund (DBC), which seeks to track changes 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 U.S. Treasury securities and money market income less the fund’s expenses.

For a more dynamic option, there’s the actively managed Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC). The fund seeks to achieve its investment objective by investing in a combination of financial instruments that are economically linked to the world’s most heavily traded commodities.

Furthermore, PDBC offers exposure to commodity futures without the tax hassle of a K-1. The fund also attempts to avoid “negative roll yield,” which could erode returns over time.

DBC Chart

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